PGB switches to fully passive equity investing

Pensioenfonds PGB has implemented a fully passive strategy for its portfolio of listed equities. The fund has sold its “disappointing” allocation to factor investing and is no longer making active choices to invest more or less in certain regions.

Until last year, the pension fund was overweight Europe and emerging markets versus the index, investing less in the US.

It was also investing in factor strategies according to which companies are selected on the basis of quantitative criteria such as value, momentum and earnings growth.

The adjustment comes after an evaluation which led the pension fund to conclude “that it is difficult to achieve structural outperformance in liquid, efficient markets,” explained a spokesperson.

PGB will continue to apply an ‘ESG overlay’ according to which companies that score well on certain sustainability criteria are being overweighted.

High-yield bonds no more

PGB has also sold its allocation to high-yield bonds, which accounted for 1.6% of the fund’s €35bn portfolio at the end of 2023.

According to the fund, an evaluation has shown that high-yield bonds have “limited added value compared to, for example, equities”. The expected return does not outweigh the risks, according to the fund.

The money that will be freed will be reinvested in private markets over the coming years. According to the spokesperson, additional investments in private equity, infrastructure and private debt will all be considered.

“Preference is given to impact investments spread over the focus themes of climate, biodiversity and food,” the spokesperson added.

Lower dollar hedge

The pension fund also reduced its hedging of foreign currency risk from 71% to 50% last year. According to the fund, a lower dollar hedge specifically ensures “a better representation of the economic dollar risk that is in our assets”.

Particularly with regard to the US dollar, the timing of lower currency hedging is unfortunate. After all, since the beginning of January, the value of the dollar has fallen by about 8%.

However, around the strategic hedging of 50%, “a systematic dynamic weighting is applied that, not surprisingly, is currently leading to a higher US dollar hedge”, the spokesperson added.

This dynamic hedge has enabled the fund to limit the losses on its dollar investments to some extent. The fund, however, declined to reveal the current level of its dollar hedge.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication.