The €3.1bn pension fund of Dutch insurer Delta Lloyd has significantly decreased its strategic allocation to government paper and bonds of semi-government organisations in favour of covered bonds and credit.

In its annual report for 2016, it said it had reduced its bond holdings from 70% to 50% of its matching portfolio, which comprises approximately 90% of its entire assets.

Government bonds and semi-government paper generated combined returns of 8.3%, but the pension fund said it expected that covered bonds and credit would yield better returns combined with a limited credit risk.

It raised the allocation of both favoured asset classes from 15% to 25% of its liabilities portfolio.

The matching portfolio – comprising allocations to fixed income funds run by Delta Lloyd Asset Management, as well as interest swaps – returned a net result of 11.3%, an outperformance of 2.4 percentage points against its benchmark.

The scheme’s return portfolio, with the remaining assets in equity and property funds, delivered 7.7%, falling 1.6 percentage points short of its benchmark.

The Delta Lloyd Pensioenfonds attributed the disappointing result largely to the Delta Lloyd Asset Management’s Blue Return and European Participation funds, which had “significantly underperformed”.

The scheme said that equity – spread over emerging markets, worldwide equity and value stocks – had produced 7.5%, while real estate gained 9.7%.

It also indicated that, following an asset-liability management study, it had decided to increase the equity stake to at least 20% of its entire portfolio.

The pension fund returned 10.4% from its entire portfolio last year.

The Delta Lloyd pension fund also stated its intention to continue independently for the time being. Its sponsoring company was recently taken over by NN Group.

“With an coverage ratio of 127.3% at June-end, we are in good financial shape, and therefore there is no reason to change things for the moment,” said Theo Krekel, the scheme’s director.

He said the board was still assessing the possible effects of the takeover. The scheme’s five-year contract for administration with Delta Lloyd Life Insurance concluded last year, while its existing contract for pensions provision with the sponsor expires in 2020.

The Delta Lloyd scheme closed the year with a funding ratio of 124%, which was more than sufficient for a full indexation of 1% for workers who follow the salary index, and 0.32%, drawn on the consumer index, for deferred members and pensioners.

Last year, the pension fund spent 11 basis points on asset management and 1 basis point on transactions.

It explained that it is solely invested in funds, some of them actively managed, and that it had hardly concluded any transactions.

The scheme has 3,895 active participants, 5,965 deferred members and 3,495 pensioners.