Sweden’s AP4 made 21.7% return in 2019; 4.4% from active management

Sweden’s AP4 fund made a return of 21.7 per cent in 2019, equal to SEK 75.2bn, the fund has revealed.

It brings total fund capital to SEK 418bn at the year-end. Total costs amounted to 0.10 per cent of assets under management. However, it said its cost level was 47 per cent lower than for corresponding pension funds in an international comparison.

Commenting, AP4 CEO Niklas Ekvall, said: “AP4’s return and result for 2019 are the highest since the start of the pension system in 2001. At the same time, the year’s strong performance in the financial markets should be viewed in the light of the very tough end to 2018, with sharply falling stock markets and rising interest rates.”

“AP4’s favourable result over time is largely due to the scope to manoeuvre provided by the buffer funds’ legal mandate, the ability to act long term and withstand large market movements, and low-liquidity investments that are conducive to long-term returns. We believe that we are fulfilling our role in the national pension system in the best way possible by having a substantial share of equities over the long term, which has proven to be beneficial since the start of the pension system in 2001.”

AP4 said active management contributed 4.4 percentage points to the return. Ekvall said the year’s active return was achieved on a “broad base, as most asset management units contributed to this performance”.

“Most of the active return contribution came from Swedish equities, global fixed income and credits, and real estate.”

Over the past ten years AP4’s portfolio delivered an average annual return of 9.9 per cent. However, Ekvall said it will be “considerably challenging” to achieve an equally favourable return over the next decade.

“In view of the very low interest rates with expected negative real returns on fixed income assets over the medium term, combined with relatively high valuations in general, we can expect lower returns going forward,” Ekvall said.

On the subject of climate change Ekvall said: “AP4 supports the Paris Agreement and the more ambitious Swedish environmental objective to achieve zero net emissions of greenhouse gases by 2045. One of AP4’s goals is to contribute to the transition to a sustainable society. AP4 has continued its work on lowering the carbon footprint of the portfolio.

“During 2019 the total carbon footprint of the equities portfolio decreased by another 11 per cent. AP4’s carbon footprint is now 48 per cent lower than for a broad, global equities index. In 2019 AP4 – together with AP1 and AP3 – established the investment company Polhem Infra, which focuses on sustainable infrastructure investments.”

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