Swedish Pension Fund AP2 Returns 2.9% in H1

Total asset value rises to $38.85 billion at the end of June.

Swedish pension fund Andra AP-fonden (AP2) reported a total return of 2.9% for the first half of 2018, raising its total assets to SEK352.4 billion ($38.85 billion) as of the end of June, but missing its benchmark’s return by 0.1%, excluding alternative investments and costs.

Although the fund missed its benchmark for the first half of the year, AP2’s return exceeded its long-term return assumption of 4.5% annually. AP2 said that over the past 10 years, the fund’s average annual real return has been 6.4%, while its annualized returns were 7.3% during the same period. Since its inception in 2001, the fund has generated an overall return of SEK244.5 billion, which is equal to an average annual return of 5.9%, including costs.

Developed markets equities was the portfolio’s top-performing asset class during the first half, with an 8.2% absolute return, followed by foreign government bonds, and global green bonds, which returned 7.4% and 7%, respectively, while Swedish equities returned 6.6%. Emerging markets equities were the worst-performing asset class, returning just 0.6% for the first six months of the year.

The fund has 21.5% of its portfolio in developed markets equities, 11% in Swedish fixed income, 10.5% in foreign credits, 10.2% in emerging markets equities, 9.4% in Swedish equities, 6.2% in emerging markets fixed income, 4% in foreign government bonds, and 1% in global green bonds.

AP2 said that during the first quarter, it implemented extensive changes to its management of foreign equities by introducing new benchmarks for both emerging markets and developed markets. The new indices compile the majority of the alternative indices, which the fund previously sought exposure to in individual sub-portfolios, turning them into one multiple-factor index for developed countries and one for emerging countries.

“Through the new indices the fund also gets exposure to a number of sustainability factors that, beyond improving the portfolio’s sustainability characteristics, also improve the expected return and risk,” Eva Halvarsson, CEO of AP2, said in a release. “Among other things, the new indices entail a considerably lower carbon footprint.”

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