Denmark’s ATP has signalled it will shift some of its listed equities exposure to Europe and emerging markets this year at the expense of its US equities holdings, after making its highest quarterly return in five years.

The giant statutory pension fund reported a 7.8% return on its investment portfolio in the first three months of this year, largely due to strong returns on all types of equities.

Christian Hyldahl, ATP’s chief executive, told IPE: “We’ve had a nice run on Danish equities and also on international equities and credit, and it’s interesting to see all the asset classes have produced positive returns – except long-term hedging strategies and a small minus for commodities.”

He indicated ATP would shift its international equities focus towards Europe and emerging markets. US equities looked slightly overvalued compared to the rest of the world, Hyldahl said.

“Within equities there is now relative value to be had in Europe and emerging markets compared to the US,” he said.

Hyldahl, who took up his new role at ATP at the beginning of January, said he was very pleased with the first quarter return.

“But we should not be measured on our short-term returns,” he added.

The investment portfolio – which makes up roughly one-seventh of its total assets and consists of the statutory pension fund’s bonus reserves – grew to DKK106.9bn (€14.4bn) at the end of March, from DKK100.4bn at the end of December.

In its interim financial figures, ATP said listed Danish equities made a DKK2.26bn profit, international listed equities generated DKK1.48bn and private equity produced DKK1.46bn in returns.

“It was a strong quarter in general on the Danish [equities] market, but we have had also a well-composed portfolio,” Hyldahl said.

Noting that as a small market, the Danish stock market is more idiosyncratic than some larger ones, he said success here was more about picking the right stocks than sector plays.

“We have been positive on the international side and on financials over the last year, and that paid off well,” he added.

In absolute terms the investment return in the January-to-March period was DKK7.85bn, significantly more than the DKK418m profit ATP made on its investment portfolio in the first quarter of 2016.

Total assets, including the much larger hedging portfolio designed to back pension promises, slipped to DKK753.2bn from DKK759.2bn, with the hedging portfolio itself contracting to DKK646.3bn from DKK658.8bn.

Data published today on ATP’s average risk allocation in its investment portfolio showed a shift towards the interest-rate factor and away from the inflation factor and “other factors” category in the first quarter of this year, when compared to 2016.

Interest-rate factor risk allocation rose to 30% from 22%, while inflation-risk factor allocation diminished to 8% from 11%. “Other factors” fell to 13% from 18%. Equity factor risk allocation, meanwhile, was unchanged at 49%.

Asked if this meant ATP had changed its view on the future course of interest rates, Hyldahl said the change was one that had been started last year in order to balance the portfolio better and make it more robust.

“We are not scared about sudden interest-rate hikes in Europe, and believe the outlook is still lower for longer,” he said. “But rates have been artificially low for some time because of ECB policy, and over a longer period of time, say several years, we do believe rates will rise.”

Meanwhile ATP might continue to expand its interest-rate factor exposure, he said.

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