SWEDEN – Japanese equities performed well for Swedish pensions buffer fund AP3 in the first half of this year, boosting overall returns despite the losses incurred on its fixed-income portfolio.

Overall, investments returned SEK12.46bn (€1.43bn) for AP3 from January to June 2013, or 5.4% after expenses, up from SEK9.85bn or 4.6% in the same period last year, the fund said in its interim report.

Total assets rose to SEK242.3bn at the end of June, up SEK9.33bn during the six-month period, after the fund transferred SEK3.13bn the Swedish pension system – its purpose as buffer fund requiring it to plug the gap between outgoings and contributions to the state system.  

Equities was the highest-returning risk class for AP3 in the first half, with a return of 8.6%, up from 5.7% in the year-earlier period.

Japanese stocks generated the highest returns, followed by North American equities, with emerging markets being the only region to post a loss during the period, AP3 said.

Unlisted equities produced 9.7%, after 7.0% in the first half 2012.

The fund made a loss on its fixed income risk class of 0.6%, compared with a small profit of 0.4% in the same period last year.

Returns in this risk class had been hit by rising yields, AP3 said. Its investments in the category are mainly Swedish and US government bonds as well as supranational bonds.
Kerstin Hessius, chief executive of AP3, said: “AP3 continued to diversify the portfolio by making further investments in real estate.

“Our real estate portfolio now accounts for more than 11% of our total assets, and around 20% of the portfolio is now comprised of alternative investments,” she said.

AP3 increased its equity stake in property company Hemsö Fastigheter to 85% from 50% a few months ago, and continued to diversify its property holdings by buying a portfolio of 72 commercial properties across Sweden for just under SEK1bn via a subsidiary, the fund said.

Over the last decade, AP3 said it has produced an inflation-adjusted return of 4.7%, more than meeting its target of a 4% average real return over time.

Hessius said AP3 had succeeded in its strategy of keeping asset management costs low.