PensionDanmark is reining in equities risk in its investments this year, even though the global economic outlook is positive right now, the Danish pension fund said in its annual report out today.
The blue-collar pension fund reported an 8.7% return in 2023 for members under the age of 46, and 7.2% for a 67-year-old individual, with the fund’s total assets having grown to DKK330bn (€44.3bn) during the year, from DKK307bn.
PensionDanmark’s 2023 annual returns came in at the lower end of an independent ranking of Danish pension providers published in January.
Regarding its investment strategy for the coming years, PensionDanmark said in the report that the strong stock and bond price increases at the end of 2023 meant markets had priced in a relatively positive economic scenario, under which the inflation trend was already paving the way for lower interest rates.
“The positive scenario immediately appears as the most likely scenario for 2024, but the risk is assessed to be on the downside,” the pension fund said.
“We have not yet seen the full effect of the recent tightening of monetary policy, and even at best, by all accounts, we have a long way to go into 2024 before we get the first interest rate cuts,” it said.
All in all, the pension fund said, there was an increased risk of periods of unrest and new setbacks in the stock markets.
“Therefore, PensionDanmark’s board of directors has decided on a starting point for the asset composition of the age pools in 2024, where the starting point for younger members’ equities is reduced by four percentage points in favour of a higher portion of savings in different types of corporate bonds and loans,” the Copenhagen-based fund said.
Detailing 2023 investment results, PensionDanmark revealed underperformance of 4.3 percentage points for its listed equities – and asset class which made up more than half of assets for members under 46 years old.
“The year’s underperformance in the equity portfolio is mainly due to the fact PensionDanmark opted to compose its shares portfolio with a significant prevalence of companies with relatively stable and not particularly cyclically-sensitive earnings,” it said, adding that this type of stock should help make the equities portfolio more resilient in economic downturns.
That part of the portfolio therefore did not include the high-valuation shares of the biggest US technology companies, which rose strongly throughout last year, the pension fund said.
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