A new global bond portfolio at the Dutch pension fund of electronics giant Philips returned more than 35% last year, according to the scheme’s 2014 annual report.
The €19.6bn Philips Pensioenfonds (PPF) said it introduced the portfolio, which included bonds from the UK and the US, to diversify its holdings in euro-denominated government paper.
The 5% allocation returned 35.1% thanks to the depreciation of the euro against the US dollar and other currencies, and falling US interest rates.
The pension fund said these factors were also the main drivers behind the 15.7% and 10.7% returns on high-yield credit and emerging market debt, respectively.
The new global bond portfolio was established as part of the revamp of PPF’s investment policy, aimed at increasing the scheme’s risk profile to achieve a full real funding in 15 years.
To reach this target, the pension fund, in the summer of last year, replaced its 70% strategic liabilities matching portfolio and its 30% securities holdings for a 60% fixed income allocation and 40% securities.
The PPF said its investment policy, as a “steering instrument” for its financial position, had grown in importance since the introduction of defined contribution arrangements in 2014.
The Philips Pensioenfonds posted an overall return of 19.6% and closed the year with a funding of 114%, equating with a real coverage of 79%.
Its passively managed equity portfolio of 28% of its assets returned 16.2% due to “improving corporate profitability”.
The scheme’s 36% allocation to euro-denominated government bonds – largely German, French and Dutch – generated 31.5%.
Global credit (5%) and mortgages (4%) returned 10.3% and 8.4%, respectively.
However, the pension fund incurred a 4.3% loss on its 1% commodities allocation.
PPF’s property allocation of 10% returned 5.3%, with direct and indirect returning 12.6% and 5.2%, respectively.
The pension fund indicated that it had continued divesting its direct holdings in favour of indirect non-listed property.
It added that, following the introduction of the new financial assessment framework (nFTK), as well as falling interest rates, the current contribution of 24% of the pensionable salary would fail to achieve the agreed annual pensions accrual of 1.85%.
As a consequence, the pension fund has had to draw €23m from a separate €108m financial reserve for accrual and indexation for active participants.
PPF reported asset management costs of 0.18% and credited 9 basis points of the 0.21% transaction costs to the transition to its new investment policy.
The Philips Pensioenfonds posted a 10.6% return – including 2.3 percentage points from its combined hedge against interest and inflation risk – over the first quarter of 2015.
It added that all asset classes contributed positively to the quarterly result, and said its policy funding ratio remained unchanged at 114%.