Outperforms the long-term goal
Over the past ten years AP4 has returned 91 percent after expenses. This means an average return after expenses of 6.7 percent per year; this corresponds to a real return of 5.5
percent net of inflation, and exceeds AP4’s real long-term target of 4.5 percent.
Since the launch, January 1, 2001, AP4’s total return after expenses has increased on average 5.9 percent annually. This surpasses the income index, which increased by a corresponding 3.0 percent annually. AP4 has thus contributed positively to the stability of the pension system. AP4’s real return since inception, over and above inflation, amounts to 4.6 percent, thus exceeding the long-term target of 4.5 percent real return. Please see graph on page 2.
Low management costs
AP4’s goal is to create maximum sustainable returns after expenses over time. Cost efficiency is important to reach the goal. AP4’s management fee is 0.10 percent, which is low and competitive in both domestic and international comparisons.
Positive contribution from all time horizons
AP4 has a management structure with three investment horizons: 40 years, 3 - 15 years and up to three years. The management structure allows for investment opportunities, with diversified horizons, that can be utilized and managed. Since the management structure was implemented in 2013, all investment horizons have generated positive earnings contributions. Profit contribution has totalled SEK 129.1 billion over the four years.
Normal portfolio - 40 years is a reference portfolio comprised of an index. The largest contribution over all four years, including 2016, resulted from the board’s long-term decision to hold a high proportion of listed shares.
The Strategic management - 3 – 15 years, since the management structure was introduced in 2013, Strategic management has contributed SEK 21.6 billion to earnings, where Swedish equities and real estate contributed the most. In 2016, Strategic management has, as every year since inception, delivered a return better than the index.
The Tactical management – up to three years, has contributed positively to results over time. The evaluation horizon is a rolling three-year period, and active positive contribution to returns amounted to 0.7 (1.3) percentage points, corresponding to a profit contribution of SEK 1.7 (2.5) billion. The 2016 return was marginally better than the index. Three of the five sub-portfolios contributed positively.
Sustainability and Corporate Governance in focus
AP4 works with two focus areas - Sustainability and Corporate Governance - where each has a number of goals.
Within sustainability AP4 works, among other things, to reduce climate risk in the assets with the help of various low carbon strategies, as well as green bonds. AP4 measures and publishes the carbon footprint annually, which can be found at www.ap4.se. During the year, AP4 resolved to not invest in tobacco shares. AP4 estimates that over time tobacco companies will underperform the index. Long-term these companies risk being considered so-called "stranded assets", in part because of increasingly restrictive regulations globally on tobacco products. Please read more on page 22. AP4 is also involved in several international collaborations and ownership initiatives concerning sustainability.
Within Corporate Governance AP4 participated in 27 Swedish nomination committees during 2015/16. Nomination committee work is prioritized, and AP4 commits considerable importance to efforts for greater diversity and more women on boards. During 2016 AP4 voted at the AGMs of 100 Swedish and 798 foreign companies.
The First - Fourth AP Funds cooperate through the joint Ethical Council to influence companies to make sustainability improvements, among other things. The ongoing work includes: preventive and reactive dialogues with foreign companies – approximately 250-300 dialogues yearly; sector projects; international collaborations; and initiatives.
Awards for AP4’s management and sustainability work as well as reporting
AP4’s efforts receive positive attention in several different contexts, both in Sweden and internationally. In 2016, AP4 received several awards, and the AP Funds’ Ethical Council also received an award. AP4 was ranked 3rd globally by 500 institutional investors of the Asset Ownership Disclosure Project (AODP) for its sustainability work. AP4 also received a special mention at the awarding of the 2° Invest Award in France and was awarded the IPE Awards 2016 - Long-Term Investment Strategy.