Sweden’s first state pensions buffer fund, AP1, reported a return of 3.5% in the first half of the year, below the 5% achieved for the same period the year before, with losses on equities dragging the result down, although alternative and systematic strategies generated returns of around 10% or more.
In its interim report, the fund said profit for the first half of the year was SEK10.6bn (€1.1bn), down from SEK14.3bn in the same period last year.
AP1 chief executive Johan Magnusson said: “The fund’s well-diversified portfolio has developed well thanks to a high proportion of capital in alternative investments.”
Within the fund’s alternative investments category, the risk parity portfolio performed particularly well, as did the low volatility portfolio and real estate, he said.
“Even hedge funds, high-yield bonds, infrastructure and private equity funds have had better returns than our investments in equity and bond markets,” Magnusson said.
AP1 has been increasing the proportion of unlisted or alternative investments in its portfolio, he said, to create a more robust portfolio that over time has lower correlation to stock markets.
Equities overall made a 1.7% loss in the first half, with Swedish equities losing 5.5%, and developed country shares losing 2.4%.
Equities in developing countries, however, generated a profit of 5.7% in the period, measured in local currencies, according to the report.
Fixed income securities, meanwhile, produced a 2.6% return, property 7.9% and infrastructure 4%.
High-yield bonds returned 4.2%, and hedge funds – which made up 4.9% of the portfolio at the end of June – produced 4.7%.
Alternative strategies, which made up 5% of the fund’s portfolio at the end of June, returned 12.8% in the six-month period, and systematic strategies generated 9.6%, AP1 said.
The portfolio of alternative strategies includes a risk parity portfolio and a portfolio of alternative beta strategies, the pension fund said.
The portfolio of systematic strategies makes up 6.3% of the overall portfolio and invests solely in low volatility stocks in developed countries.
AP1 said in its report that the UK’s vote to leave the EU had affected asset values, but it did not give figures on this.
It said only that the valuation of its real estate holdings in the UK, stated in the report, were made before the referendum.
It’s 25% stake in Cityhold – a property investment company investing mainly in core office properties in big European cities – is valued at SEK3.5bn in the report, it said, but added that more than half of the value of Cityhold’s properties related to assets located in the UK.