Swedish state pensions buffer fund AP2 reported a total investment loss of 5.1% at this year’s halfway point, the weakest result reported by any of the main four AP buffer funds.
The Gothenburg fund’s chief executive officer said the nature of the market recovery that followed the March’s coronavirus lockdown had a negative impact on AP2’s equity portfolio.
In absolute terms, the fund reported a SEK19.3bn (€1.86bn) investment loss between January and June, a period in which it transferred SEK4.2bn into the state pension system.
Eva Halvarsson, AP2’s CEO, said: “By the end of the first half of the year, financial markets had turned upwards and most economies had begun to recover.”
The stock market upturn had been largely driven by emerging equities in the technology sector, she said.
“This has adversely affected the fund’s equity portfolios, which avoid concentrating excessive holdings in large companies, and instead over-weighting equities with a low valuation,” she said.
AP2’s total assets dropped to SEK357.9bn at the end of June from SEK381.3bn at the end of 2019.
Emerging markets equities were the weakest performing assets for AP2 in the six-month period, with the allocation suffering a 15.5% loss, following by developed markets foreign shares with an 11.4% loss.
Swedish equities, meanwhile, lost 5.5%, while foreign government bonds was the most profitable allocation for the fund, ending June with a 4.5% return.
Relative to its benchmark index, AP2 said its return overall was -0.1%, excluding alternative investments and costs.
The fund increased its allocations to private equity funds and foreign real estate in the first half of the year, Halvarsson said, with these moves financed by a reduction in the allocation to Swedish bonds.
AP2 also said it upped its allocation to Chinese A shares by cutting the allocation to other emerging market equities.
Chinese A shares were a particularly strong performer for AP2 in 2019, with the fund reporting a 52.6% return on the renminbi-denominated equities which have become more accessible for foreign investors in recent years.
AP2 is one of the four main state funds backing Sweden’s income pension – the primary component of the country’s first pillar provision.
The last to report first-half results this year, AP2’s overall return falls below that of its peers.
For 2019, however, AP4 achieved the strongest result out of the four funds.