The third Swedish national pension fund, Tredje AP-Fonden or AP3, has reported positive returns of 6.9% for the first half of this year, even though property investments failed to perform.
The best performing asset class for the period was Swedish equities, which returned 10.6%. European equities returned 1.6% and global equities beyond Europe and Sweden returned 2%, which resulted in the entire equity portfolio, which accounts for 54.5% of the fund, returning 4.7%.
In order of mandate size (commencing with the largest), AP3’s equity managers are Merrill Lynch Investment Management, State Street Global Advisors, Capital International, Batterymarch Financial Management, Axa Rosenberg Investment Management, Schroder Investment Management and JF Asset Management.
Fixed income assets also produced positive returns as global bond yields fell in the first half. Nominal fixed income securities returned 2.8%, and index-linked securities produced 5.7%. Prudential Investment Management is AP3’s sole fixed income manager.
Real estate investments failed to produce positive results, returning –3.2%. AP3 holds Skr7.6bn (e820m) in real estate investments in the form of shares in AP-fastigheter, which is an unlisted property company. In response to the negative returns, an AP3 spokeswoman said there were three points to consider.
“Firstly, this negative return should be seen in the light of that real estate has performed well over the last few years; secondly, Swedish real estate prices are falling – hence the negative return should not come as a surprise to anybody; and finally, real estate tends to lag the business cycle, so what we are seeing is well in line with historical patterns.”
With asset management costs of 0.1%, the total return for the fund was 6.9% - beating its benchmark by 0.1%. AP3 now has Skr129.7bn (e14bn) under management.
The fund also received a net inflow of Skr1.4bn (e152m) in the first half.
Longer term returns, however, remain negative. Since the fund’s inception at the start of 2001, accumulated absolute returns now amount to –11%.
Although, during this period, the fund has outperformed its benchmark by 0.8%. AP3 chief executive Tomas Nicolin said he was “content that the fund is continuing to generate a positive active return in relation to its benchmark”.