Swedish pensions giant AP7 said it has stepped up the asset diversification in its rapidly-growing equities portfolio in the first half of this year, adding more risk premia and private equity investments.
The pension fund – which runs the default option in the defined contribution premium pension – reported its balanced lifecycle Såfa product returned 17.6% on average for the first six months of this year, beating the average return produced by private premium pension funds, which was 11.8%.
This is a turnaround from 2020, when Såfa made a 4.4% return, just half the gain made by private funds offered on the first-pillar system’s funds marketplace platform.
In its interim report released yesterday, AP7 reported that its equities portfolio – which makes up the bulk of its SEK849bn (€83.5bn) of total assets – beat the benchmark by 2.1 percentage points with a 19.1% return in the first half of this year, though the smaller bond fund made a 0.3% loss.
The two portfolios serve as the building blocks for the Såfa product.
AP7 said: “During the year, further diversification took place in the equity fund holdings, for example, by increasing investments in risk premiums and in private equity.”
The Stockholm-based pension fund said North American and European shares had been the real motors behind the rising equity markets seen particularly towards the end of the reporting period – regions which it said made up just over 70% of AP7’s benchmark index.
Emerging market equities, on the other hand, had shown much weaker development, it said.
“During the year, the Swedish krona weakened in value in relation to the US dollar, which has benefited the fund’s value development,” AP7 said in the report.
Total assets in AP7’s equity fund grew to SEK783.4bn by the end of June from SEK655.4bn at the end of 2020, while the value of the bond fund fell to SEK65.9bn from SEK67.2bn, according to the results released.
Since the end of 2017, the equity fund has almost doubled in value.