SWEDEN - The Swedish pension default fund, Premiesparfonden, run by Sjunde AP-fonden (AP7) has outperformed the average fund in the Premium Pension System (PPM) with a return of 23.2% in the eight months of 2009.

Latest figures from the PPM on the performance of 800 pension funds in the system to the end of August showed a marked improvement from the average -33.8% posted by selected funds in 2008 and the -36.2% return from the Premiesparfonden.

For the first eight months of the year the return for the PPM as a whole, including the default fund, was 22.5%, however the Premiesparfonden returned 23.2% against an average of 22.3% from the rest of the funds.

At the end of August, the total market value of investments in the PPM was SEK 283bn (€28bn), of which the default fund holds the largest share with a market value of SEK 74.53bn, while the other premium choice fund, Premievalsfonden, run by AP7 is valued at SEK 2.12bn.

This is an improvement from the interim figures published by AP7 in August, which showed that at the end of June the default fund had a market share of 26.1% of the PPM, with a market value of SEK 69.67bn and an asset allocation of 82% in equities, 8% bonds and 10% alternatives.

Meanwhile, the Premievalsfonden was valued at SEK 1.98bn with a market share of 0.7% of PPM assets and an investment strategy of 90% equities and 10% alternatives. (See earlier IPE article: AP3 rises 5.2% but warns system rebalancing takes time)

Richard Gröttheim, executive vice president of AP7, noted the recent performance is mainly attributable to a recovery in the equity markets, as there have been no changes in the asset allocation of the two funds since May 2007.

He pointed out the funds had “suffered a bit because we’ve got quite a high share of equities in the portfolios, and Swedish and emerging markets in particular were not good to have in 2008 and beginning of 2009. But that has paid off now”.

Going forward, Gröttheim said AP7 will maintain its existing strategy, partly because “we’re comfortable in the rebound” but also because it is in the process of planning a new project for May 2010, when it intends to offer savers a “lifecycle” product that will take into account people’s ages.

Both the premiesparfonden and the premievalsfonden will be affected by this project as it will essentially mean one fund for all savers. This is because at the moment once a saver leaves the default fund they can’t go back, but Gröttheim said that will change going forward so there will be no need for the premium choice fund anymore.

The recent improvement in performance for the PPM funds, including the two AP7 funds, was helped by a 12.2% return in April, followed by 3.8% in May and 4.4% in July, while June and August posted positive returns of 1.4% and 1.7% respectively.

This turnaround has helped improve the average returns for savers in the PPM system, most of which have invested since it started in 1995, with the average return now standing at just over 2% a year over the last 14 years.
 
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