Swedish state pension fund AP2 unveiled a 3.5% investment return for 2020, less than half its five and 10-year average, explaining that its value strategy for equities had left it unable to capitalise on the surge in technology stocks in the pandemic-dominated year.

The Gothenburg-based pension fund – the first of Sweden’s six national AP pension funds to report 2020 financial results – also said a big part of its work last year had been aligning some of the portfolio with the Paris Agreement on climate change.

AP2’s 3.5% 2020 return after costs compares to 2019’s 15.9%, and its average return over the last five years of 7.3%, and of 7.7% over 10 years.

Eva Halvarsson, AP2’s chief executive officer, said: “Our SEK12.8bn (€1.27bn) profit for the year is a result of developments in the stock market, particularly the Swedish, and also reflects a good return on the fund’s investments in private equity funds, Chinese equities and real estate.”

AP2’s Swedish and Chinese equity portfolios generated a total return of 15.9% and 33.2%, respectively, she said.

The pension fund reported a rise in total assets to SEK386.2bn, compared with SEK381.3bn at the end of 2019.

Halvarsson said the rise in global stock prices last year had been driven mostly by growth equities in the technology sector.

“This has adversely affected the fund’s equity portfolios, which avoid concentrating excessive holdings in large companies and instead overweight equities with low valuations,” she said.

“We expect this to generate a better return in relation to risk in the long run. However, it has been negative for us this year,” the CEO said.

The pension fund, which acts as a buffer fund in Sweden’s state income pension system, made net payments into the system of SEK7.9bn, down from the SEK6.5bn it paid in 2019, according to the annual figures released.

Halvarsson said that in spite of everything happening around the world in 2020, AP2 had managed to deliver much of what it had decided to do, including taking “key steps” to develop its asset management approach.

“I am very proud that we adapted our internally managed holdings of global equities and corporate bonds during the autumn to bring them in line with the EU Paris-Aligned Benchmark, without compromising the return and risk characteristics of the portfolios,” she said.

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