AP4 exceeds the return target and the income index
Over the past ten years, AP4 has returned 88 percent after costs. This equates to an average annual return of 6.5 percent, corresponding to a real return of 5.4 percent after adjusting for inflation, which exceeds AP4’s 4.5 percent long-term real return target.
Since the start, January 1 2001, the return after costs amounted to a yearly average of 6.0 percent. The return surpasses the income index, which increased by 3.0 percent annually.
The income index is the basis for the accumulated liability of the income pension system. AP4 has contributed positively to the pension system’s assets and to the system’s stability.
AP4’s real return since launch, i.e. in addition to inflation, is 4.7 percent and exceeds the long-term target of 4.5 percent in real return. Refer to the graph on page one.
Outperforms the index every year since 2009
AP4 conducts active management. In other words, the goal is to generate a return that exceeds both the index and the market as a whole. The graph above shows that the strategy has been
successful and that the Tactical management has exceeded the index for many successive years. AP4 also surpassed the index during the first half of 2017.
Net payments continue
One of the strengths of the Swedish pension system is that it
strives to be generational neutral. The large generation born during the 40’s contributed during their work lives with net inflows to the pension system. Now as they retire, the AP Funds contribute capital to the pension system, which bridges the demographic differences between generations. Since 2009, the AP Funds have contributed capital to cover the pension system’s deficit between pension contributions paid in and pension
contributions paid out. AP4 has paid out a total of SEK 40 billion since the time when net flows to the system became negative.
Government evaluation positive
The AP Funds have continued to contribute positively to the income pension system while simultaneously reducing costs compared to the previous year. This safeguards our future pensions,
says Finance Minister Per Bolund, in a press release regarding the Government’s annual evaluation of the AP Funds.
The Government’s evaluation showed that since inception in 2001 through 2016, the AP Funds average return amounted to 5.6 percent per year - well above the income index during the same period, which increased by 3.0 percent per year. The AP Funds’ share of the income pension system’s assets has increased from 10 to 15 percent since the start.
An external study shows that the AP1-AP4 Funds are cost-effective compared to a selection of foreign pension funds with similar mandates and size. More specifically for AP4, the survey shows that AP4’s costs are nearly 60 percent lower than the average cost of the comparison group and 40 percent lower when adjusting for asset allocations and size.
The Government is positive to the sustainability work undertaken by the AP Funds and the AP Funds Ethical Council, where many of the sustainability efforts have been recognized with awards in Sweden and internationally. The Government notes that these issues are important, and work should continue with unabated intensity.
The Government also considers it positive that in 2016 AP1-AP4 increased the cooperation between the funds, which can contribute to cost efficiency without negatively impacting the funds’ independence or diversification of management models.