A head on approach

Judge’s comment: “Innovative fixed income strategy given the fund’s objectives and the market it operates in, with a good level of diversification.”

Bosch Pensionsfonds (Bosch PF) asset allocation strategy follows a dynamic lifecycle approach which it derives from asset liability studies. Fixed income plays a major role in the investment strategy, especially for members over the age of 55, when it becomes the key component of a capital preservation approach to consolidate members’ savings as they near retirement. But fixed income has not been without its challenges in recent years. Bosch PF has met these challenges head-on.

Today´s investment landscape has changed. Record low and even negative interest rates, massive government debt problems and the risk of a possible sharp rise in interest rates pose a significant threat to a pension fund’s long-term investments. Although these risks affect all asset classes, they affect fixed income in particularly. For Bosch PF, reallocating to other classes such as equities and alternatives is not the solution. Rather, it sees the answer in having the optimal mix of all valuable asset classes. Accounting for a minimum of 42% and a maximum of 70% in its different lifecycle strategies, the fixed income exposure needs to be dynamic and appropriate.

To ensure it runs an efficient fixed income portfolio, Bosch PF manages all its exposure in a €1.8bn master fund. Its fixed income strategy encompasses a wide range of investments with significant exposure to highly rated government and covered bonds, which together account for 25% of the portfolio and constitute what the fund calls its safety anchor. With today’s low interest rate environment a central consideration, this component is complemented by investment grade and high-yield corporate bonds, which represent 55%, with emerging market bonds making up the rest. The optimal and systematic use of liquidity and credit risk premia in this asset allocation contributes to the sustainable above average results that Bosch PF enjoys.

Risk plays a central role, but the broad diversification of the portfolio ensures risk is optimally allocated and reduced within the master fund, covering the most extreme scenarios the fund has tested. Defining the composition of the fixed income portfolio is a continual exercise and Bosch PF and its advisers are permanently looking for new investment ideas to ensure the portfolio’s optimisation across strategies, segments and regions.

With this in mind, Bosch PF benefits from an active management approach. Its managers combine strategic asset allocation with tactical adjustments by systematically exploiting market inefficiencies to generate additional returns. Furthermore, active management constitutes a vital part of the fund’s risk management, allowing for the identification and elimination of extreme risks at an early stage. Active manager risk is reduced by using multiple managers within each asset class. Passive management is primarily used for high quality bonds in developed markets. The combination of the two different approaches helps integrate active risk management with cost efficiency. All Bosch PF’s investments are managed externally using third-party investment products or specialist investment managers. Well-defined mandates ensure that investment portfolios are managed consistently in line with objectives and strategy.

The most recent changes, made in 2015 to the portfolio’s composition, include investing more in US government bonds at the expense of euro-denominated equivalents whose historically low yields were placing a strain on Bosch PF’s overall returns. This repeated a similar move the previous year in the scheme’s corporate bond exposure when it divested out of euro bonds in favour of their US counterparts.

The results of Bosch PF’s fixed income investments speak for themselves. Armed with the right strategy, the fund has demonstrated that attractive returns can be generated in almost every market segment of the fixed income space, with its master fund for the asset class returning 6% in 2014 and 5% per annum on average for the past five years.

2014 Essentials

Bosch Pensionsfonds AG


Founded in 2002

Defined contribution corporate fund


  • active: 130,000
  • retirees: 35,000

Assets: €2.6bn


  • one year: 9.5%
  • three years: 11.9%
  • five years: 9.0%
  • ten years: 6.4%

Quick facts

  • Switch to US government bonds to offset low yields of euro equivalents
  • Active management ensures sustainable, above-average returns
  • Master fund structure based on safety anchor and higher yielding fixed income asset types


  • Superannuation Arrangements of the University of London (SAUL) United Kingdom


  • Xavier Bellavista
  • Rudyard Ekindi
  • Haitse Hoos
  • Michel Salden