SWEDEN - The buffer fund Första AP-fonden, AP1, outperformed its benchmark by 0.6 percentage points in 2006, reporting a 9.8% return before expenses for the year. Its sister fund AP4 missed its benchmark by 0.6 percentage points.
AP1's assets rose by SEK19.8bn (€2.13bn) to SEK207.1bn. The fund attributed the good results to "a sustained high proportion of equities, rising stock markets and successful returns from active management".
Last year's return before expenses of 9.8% was considerably lower than the 17.5% in 2005. The fund's annualised return since 2001 stands at 5.1% after expenses.
As the fund grew, the percentage of AP1's externally managed assets decreased from 38% to 34%. Meanwhile the share of actively managed assets increase from 94.8% to 98% mainly because of new emerging markets mandates that were awarded last summer.
In March and June the fund replaced UBS as passive emerging markets equity manager on a SEK9.8bn mandate with six new managers - five of them on active mandates - with combined invested assets of SEK10.2bn.
On Monday, AP1 announced that it will review its all-active investment strategy for Japan, possibly to include passive or enhanced mandates.
Meanwhile, AP4 reported a total return of 10.5% against 16.9% in 2005, missing its benchmark by 0.6 percentage points.
The average return for the last six years stands at 4.8% per year, well above the annual inflation rate of 1.5% in the same period.
"Trends in recent years show with great clarity that buffer fund asset management should be evaluated over longer time horizons," AP4's new president Mats Andersson commented. The former CIO of Skandia Liv was announced last summer as successor for Thomas Halvorsen, who has retired.
"The buffer funds were severely criticised early in the decade for being overweight in equities, which contributed to poor performance - short-term. But viewed over the entire period, the buffer funds have achieved their goal of strong real absolute return by a good margin," Andersson added.
AP4 invests 62.1% of its assets in equities, 19.9% of which in domestic equities. AP1's exposure to equities is 54.6% with 41.6% in Swedish stocks.