PensionDanmark has made further cuts to its government and mortgage bond holdings in favour of real assets, in a bid to temper the impact of low interest rates.

In its interim results, the Danish labour-market pension fund reported a rise in pre-tax investment returns for the first half of 2019, to 9.6% and 6% for 45-year-olds and 67-year-olds, respectively. This compared to 0.5% and 0.6% for the age groups in the first half of 2018.

Torben Möger Pedersen, PensionDanmark’s chief executive, said: “Of course we are pleased with the great return in the first half of this year. Looking ahead though, we are probably looking at a longer period with low – even negative – yields, waning economic growth and significant geopolitical uncertainty as a result of factors including the trade conflict between the US and China, and Brexit.”

Because of this, he said, investors had to adjust to the returns on pension savings becoming markedly lower in the next few years than they were in the last decade.

“Our reaction to the low yields is a further reduction in our investments in traditional government and mortgage bonds and continued growth in our investments in sustainable real estate and infrastructure in order to secure a satisfactory return for our members in a zero-interest rate environment,” said Möger Pedersen.

In July this year Denmark became the first developed economy to record negative yields on all its government bonds across the yield curve, according to Reuters.

PensionDanmark reported an overall investment return at this year’s halfway point of DKK17.5bn (€2.3bn) before tax – its highest ever half-year return – compared with DKK1.1bn the year before.

The high return was due to significant growth from stock markets in the period and rising bond prices as a result of falling yields, the fund said. It also cited stable returns on credit, real estate and infrastructure investments.

Möger Pedersen said it was even more important in a low-return investment environment to keep costs down. PensionDanmark’s work on digitalisation by using robot technology and artificial intelligence had aided this effort, he said.

The pension fund reported a rise in contributions to DKK6.3bn between January and June this year, from DKK6bn in the same period in 2018. Total assets grew to DKK257bn at the end of June, from DKK240bn at the same point in 2018.

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