SWEDEN – The Stockholm-based e2.9bn AP7 fund (Sjunde AP-fonden), which manages the assets of the Swedish national PPM system, looks set to introduce an actively managed currency overlay strategy that could be worth up to e1bn next year, in the pursuit of greater outperformance.
Daniel Barr, chief analyst at AP7 said the fund had undergone a serious process of analysis regarding the potential of “adding alpha” through an active overlay. “We already have a passive overlay strategy, which is made up of a 50% hedge on the four major currencies.
“We have discussed the active currency overlay strategy internally and with our board, but we haven’t set up a final timetable yet as to how to go ahead with the project. It is in progress, however.”
Barr explained that the AP7 fund had around 65% of its holdings overseas and was examining whether it could develop the actively overlay strategy for around 50% of it’s international assets.
He added his view that no decision had yet been taken on how the fund would proceed in the selection of currency managers.
AP7’s Premium Savings Fund, the fund for default options under the PPM system, invests 25% of its assets in Swedish equities and 65% of its assets in overseas equities (breakdown - North and South America 55%, Europe 30%, Asia 15%). The remainder of the portfolio is invested in Swedish inflation-linked bonds (9%) and cash (1%).
The fund’s Premium Choice Fund, for those selecting the AP7 option, has a slightly higher ratio in foreign equities (72%) and a reduced exposure to Swedish inflation-linked bonds.