Portfolio risk 2016

Portfolio risks decreased during 2016

AP4 has a high equity exposure which is necessary, based on targets, to over time generate a real return of 4.5 percent in annualized terms; these are publicly traded liquid shares invested globally. During the past year, the volatility in the Global equity portfolio declined, while the Swedish equity portfolio’s volatility increased. Overall, however, the portfolio risk of AP4’s liquid assets, as measured by a twelve-month historical standard deviation, decreased to 7.8 (9.4) percent at year-end.

Volatility of liquid assets

 

Changes in market movements as a measure of risk are utilized, but this could lead to errors given the Fund’s investment horizon is so long-term. For this reason, the Fund works with three different investment horizons where we take into account developments in the near term without losing sight
of the long-term target.

The legal requirement that stipulates that at least 30 percent of the assets are invested in fixed income securities with a low credit- and liquidity risks are obvious risks that may hinder the fund in achieving the return goal over time. With an average interest rate at near zero percent, the legal requirement forces the Fund to seek alternatives that can compensate for the low interest returns.

Reduced active risk

The active risk for AP4’s Tactical management, as measured by the twelve-month history, declined during the year and amounted to 0.3 (0.5) percent. The reason was primarily a lower risk utilization in the management of fixed-income securities. The Strategic management’s active risk utilization remained unchanged at 2.7 (2.7) percent.

Active risk Tactical management

 

Interest rate risk

During the past year, interest rate risk, measured by the modified duration, fluctuated within the range limit set for the fixed income portfolio.

 

Currency exposure

AP4’s open currency exposure for the Total portfolio, fluctuated during the year between 19 and 29 percent. AP4 had the largest currency exposure to the US dollar, which during the year strengthened considerably against the Swedish krona.

Currency exposure, Total Portfolio

 

Exposure to states

AP4’s exposure to countries with a rating below AAA in the euro zone declined during the year.

Exposure to sovereign states within the Eurozone with a rating below AAA, 2016-12-31.

Exposure to issuers

AP4 has a large exposure to the banking- and financial sector. The 15 largest holdings represented a total exposure of SEK 50 (46) billion, of which SEK 39 (34) billion related to exposure to the Swedish banking- and financial sector.

AP4’s five largest issuers represented an aggregated exposure of nearly SEK 72 (63) billion.

Total exposure to the five largest issuer groups

Credit risk

AP4’s fixed income holdings in the fixed income portfolio consists primarily of high quality government and corporate bonds with a rating of AA or better. The proportion of BBB-rated bonds, which is the lowest rating level in the fixed income portfolio, averaged five percent.

Fixed income holdings in the fixed income portfolio