Sweden’s seventh AP fund (AP7) has said its board decided in the first half of this year to reduce the gearing in its SEK261bn (€27.7bn) equities fund gradually to 125% from 150%.

In its interim report for January to June 2015, the state pension fund said that, as part of this plan, it had trimmed the fund’s gross leverage to 139.5% by the end of June.

While the normal level of leverage had been set at 150% of the fund’s capital, its board is allowed to reduce this on the chief executive’s recommendation – in situations where it is seen as appropriate to lower exposure to the stock market, for example.

The pension fund said it produced a 9.8% return for savers in its balanced Såfa pension fund in the six-month period, which outperformed the average 8.3% return for competitor funds in Sweden’s premium pension system.

AP7 operates as a state-owned alternative to the private investment funds in the country’s first-pillar premium pension system.

Its Såfa fund is composed of AP7’s “building-block” equity and fixed income funds, with the proportions set depending on customer age profiles.

The equity fund generated a 10.5% return in the first half of the year, in line with the benchmark.

In absolute terms, the return was SEK24.6bn, and the fund’s total assets increased to SEK260.7bn at the end of June.

AP7 said: “The positive development seen in the fund is due to the upswing on global equities markets in 2015, which was intensified by the fund’s leverage as well as the weakening of the Swedish krona.”

Active management contributed positively to the result, it said, adding SEK12m, although tactical allocation reduced returns to the tune of SEK38m in the reporting period.

It blamed the tactical asset allocation underperformance on the fact the fund had had a lower global equity exposure than the benchmark, adding that this had also had the effect of reducing the fund’s risk level.

Meanwhile, the fixed income fund produced a 0.6% return in the period, identical to the benchmark return.

The return was SEK99m, while total assets in the fund rose to SEK18.3bn.

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