Tactical management invests primarily in fixed income securities and global and Swedish equities. The management mandate, based on an investment horizon of up to three years, is to create excess returns and outperform the index. To surpass the performance of passive index management, Tactical management identifies and invests in securities with expected positive long-term growth by taking advantage of the investments estimated revaluation potential and market mispricing.
The Tactical management’s active return was 0.0 (0.1) percentage points for the full year, which was marginally better than the index. This corresponds to an active profit contribution of SEK 87 (187) million in 2016. Three of the five management units contributed positively.
For the evaluation period, a rolling three years, the positive active return was on average 0.3 (0.4) percentage points.
The information ratio is used to measure risk-adjusted return. The measure describes the annual excess return achieved in relation to the active risk taken.
Daily data has been used in the calculation of AP4’s risk-adjusted returns. Daily data is a more conservative calculation method as it produces a lower information ratio than if, for example, weekly or monthly data was used.
Eight years exceeding the index
Over the past eight years, since the current management structure was implemented, the active Tactical management generated a return better than the index. During the eight years, the positive earnings contribution above the index was nearly SEK 8 billion.
Good risk-adjusted return
Values of risk-adjusted return (information ratio) that are above 0.5 for individual years is typically considered a good result. The risk-adjusted return, since the implementation of the current management structure, has been good. The information ratios of the various management units are generally high.
On average, during the past three years, the information ratio for the Tactical management amounted to 0.8 (1.3).