Equities accounted for more than half of the assets
Global and Swedish listed shares together accounted for more than half of the investment assets at year end, corresponding to 58.3 (56.9) percent.
AP4’s global equities return amounted to 7.3 (1.7) percent and 12.4 (14.1) percent for Swedish equities.
Global and Swedish listed equities accounted for more than half of the assets. At the end of the year 58.3 (56.9) percent of assets were invested as follows: 39.4 (38.4) percent global equities, and 18.9 (18.5) percent Swedish equities. The market value of listed shares amounted to SEK 194.8 (175.0) billion.
Equity management is conducted within two units, Global equities and Swedish equities, where capital is managed through several different strategies.
Swedish active management
For years, the Swedish active equity management has outperformed the index with good risk-adjusted returns.
Management is conducted based on long-term fundamental company analysis, where corporate governance and sustainability are integrated in the strategy. The aim is to outperform the index by identifying companies with good long-term value growth and companies with revaluation potential.
Global active management
Global management focuses on the selection of external managers, portfolio construction and index management.
The active global management is conducted by external managers through a number of sub-portfolios. The external managers are selected in order to increase the diversity of returns and risk sources, and they differ in terms of region, sources of information and investment strategies, enabling good risk-adjusted returns over time.
AP4 reduces climate risks in assets by including investments in low carbon strategies. AP4 has a global platform for these strategies and they accounted for about 24 percent of the global equity portfolio, equivalent to SEK 30 billion at year end. Please read more on page 20.
During 2016, AP4 resolved to not invest in tobacco shares. Growing long-term risks, including increased regulation, is estimated to negatively affect tobacco companies’ valuations in the future. AP4 estimates that over time tobacco companies will underperform, and long-term these companies risk becoming so-called "stranded assets". Please read more on page 22.
Interview with Jannis Kitsakis, Senior Portfolio Manager, of small and medium-sized companies
Tell us about your background and your job at AP4?
- I graduated with a MSc in Business and Economics and I have worked in the equity market since I graduated - a total of 17 years. I started at AP4 in 2008 and have since worked in the Swedish Equities unit, says Jannis. Today I am the responsible portfolio manager for AP4’s internal Small Cap portfolio. This means I follow and analyse the small and medium-sized companies listed on the
Stockholm Stock Exchange and make investment decisions. The small cap portfolio has approximately 60-70 holdings and assets of SEK 9 billion, which I actively manage.
What does active management imply?
- For us at AP4, we want to create a higher return than index management, which means actively taking positions in individual shares that we believe have the potential over time to generate a return greater than the index. Generally, we evaluate our investment in the long term and our investment horizon is over several years.
Why do you like working at AP4?
- One of the advantages is AP4’s very long-term mandate. The management mandate and trust assigned by the board is long-term. Our management is not affected by on-going liquidity flows in and out of the fund, which a fund with active unitholders must consider, says Jannis. I think these are good prerequisites to pursue successful management - in particular for small- and medium-sized companies.
- Genuine long-termism characterizes the culture of the organization - from the board down. That, combined with a good "track record" for AP4, means that we, who make investment decisions, have the confidence to continue to think long-term - even in periods when results do not go as planned, explains Jannis.
What is your analysis and investment process?
- The analysis and investment process is basically fundamental and very manual. There is no "ready-made template" you can use, but work is complex and differs depending on the company being analysed.
- A great deal depends on information gathering and assembling a thorough understanding of the companies. For example, I read reports and various analyses, says Jannis. I also try to continuously meet with representatives of companies.
- Besides the obvious analysis criteria, such as the company’s accounting and share valuation ratios, I focus, for example, on the structure of the company’s ownership and its governance. The owners, the Board and management’s behaviour is of course crucial for a company’s long-term development. It is also important to look at the company’s long-term market trends, says Jannis.
- As a portfolio manager, having experience and acquiring good knowledge of a company’s history and its representatives is usually very helpful when an overall assessment is made, he continues. Another benefit is having the ability to engage with experienced and talented colleagues before making investment decisions.
How was 2016?
-The year has been very good. A return of close to 19 per cent is fully approved, says Jannis. Above all, I am very pleased with the relative return, which meant that the Small Cap portfolio performed better than the benchmark index by more than seven percentage points.
Any events that stand out?
- I am pleased that we could support two very interesting companies where AP4 is a co-owner - the IT company CLX Communications and probiotics company Probi. Both companies issued shares during the year in connection with acquisitions in the US, says Jannis. I am also pleased that AP4, the largest shareholder in Gränges, contributed to the selection of a very good board through successful nomination committee work during the year.
- For many years, AP4 has successfully participated as an anchor investor in connection with IPOs. During the Autumn, we had the opportunity to invest in a new interesting company, Volati, which is an industrial group consisting of about 40 different subsidiaries that has an exciting acquisition agenda in front of them.