The €3.2bn pension fund of supermarket chain Ahold saw its 0.7% return on investments last year offset by a 4% loss on its interest hedge, leading to an overall return of -1%.
Following a new and dynamic policy for its interest hedge, the scheme had already reduced its interest cover from 75% to 55%, which prevented an additional loss of 0.8%, according to its 2013 annual report.
By contrast, the pension fund’s 80% hedge of the main currencies contributed to a positive return of 2.3%, it said.
The interest rate increase from 2.53% to 2.84% boosted the scheme’s coverage ratio – which improved from 114.3% to 116% – but had a negative effect on its 64% fixed income holdings, causing a 3.5% loss.
The Ahold Pensioenfonds said it was also hit by underperforming emerging market government bonds, which it introduced last year as a tactical position of 5% at the expense of global credit.
Its asset managers Pimco and Stone Harbor lost 14.6% and 16%, respectively, on these investments, it said.
The pension fund reported a 14.3% return on its 23% equity portfolio, with returns from investments in Europe, North America and the Pacific varying between 13.2% and 24.7%.
Property (6%) and private equity (3.6%) delivered returns of -1.1% and 11.9%, while commodities (2.1%) produced a loss of 12.7%.
Last year, the Ahold scheme replaced its actively managed European listed property portfolio with a passively managed global property mandate, switching from Cohen & Steers to Northern Trust in the process.
The pension fund also said the ratio between fixed income and equity in its portfolio would now depend on its coverage ratio.
If its funding is more than 130%, it will raise its investment risk through increased investments in securities, it said.
This is in contrast with the policy of the €22.5bn Dutch pension fund of Shell, which decided to reduce its equity exposure in favour of fixed income, following a funding increase to 131%.
The Ahold Pensioenfonds is to grant a full indexation for the first time in five years, after meeting less than 50% of inflation in 2013.
The scheme has 35,130 active participants, 11,600 pensioners and 36,560 deferred members.