Geroa Pentsioak EPSV, the multi-sector pension fund for workers in Gipuzkoa, a province in Spain’s Basque Country, has announced a return of 5.13% for calendar 2015 on its €1.7bn investment portfolio.

This compares with a 9.39% return for calendar 2014 and takes the average annual return since the fund’s inception in 1996 to 6.51%.

But in contrast with last year, when fixed income drove results, equities provided higher returns over 2015.

Geroa Pentsioak is a unique concept in Spain, providing supplementary pension cover for medium and low-paid workers rather than for those with higher incomes.

Its investment policy is to generate a return that is 2-3 percentage points above Spanish inflation.

Fixed income dominates the portfolio, with a 58% allocation as at end-2015, while 30% was in equities.

Within the fixed income allocation, Spanish government bonds made up 6.1% of the total portfolio, with 4.4% in bonds issued by the Basque government, 2.3% by the Portuguese government and 2% by Italy.

For fixed income securities subject to market volatility, Geroa has been decreasing those assets with the worst risk/reward ratio, both in terms of duration and credit risk type.

Specifically, the pension fund has reduced assets with very low returns, such as mortgage bonds, government bonds and straight bonds.

Where fixed income assets are subject to market valuations, the pension fund has increased those securities with a short duration and slightly increased the ultra-long bonds for the purpose of obtaining higher coupons.

In addition, Geroa has significantly lowered exposure in the medium-long end of the curve for government bonds.

For equities, it has upped the weighting in finance and lowered the weighting in industries and materials.

In terms of geography, exposure to Europe has been increased, whereas exposure to the US, Latin America and Japan has gone down.

Meanwhile, there is also an emphasis on investing in the local economy.

Investments in the Basque Country and Navarra form 11% of the total portfolio.

This includes 2.46% invested in Orza, an asset manager set up to invest in Basque businesses, in which Geroa has a 50% stake.

Geroa’s annual report emphasised the slowdown in emerging markets, with many countries experiencing weak growth, or even recession.

It also said European macroeconomic data had only begun to show a slight improvement as a result of the European Central Bank’s policies, notably its asset purchase programme.

“If there is significant downward correction in developing countries and in core sectors such as steel production and mining, incipient European recovery may be nipped in the bud,” it warned.