Commercial buildings stand at night in Osaka, Japan. (Photographer: Tomohiro Ohsumi/Bloomberg)

World's Biggest Pension Fund Rides Stocks to $46 Billion Gain

(Bloomberg) -- The world’s biggest pension fund posted its fourth-straight quarterly gain, as global stocks rose and a decline in the yen against both the dollar and the euro helped boost the value of its overseas investments.

The Government Pension Investment Fund returned 3.5 percent, or 5.1 trillion yen ($46 billion), in the three months ended June 30, increasing assets to a record 149.2 trillion yen, it said in Tokyo on Friday. Domestic equities added 2.3 trillion yen as the benchmark Topix index rose in the period, while the value of foreign stocks increased by 1.9 trillion yen.

The Japanese retirement fund’s recent string of quarterly gains follows a series of losses after it overhauled its strategy in 2014 to buy more shares and cut debt. GPIF, which holds the majority of its stock investments in strategies that track indexes, benefits when broader equity markets are rising.

“With stronger stocks, we’re not seeing a repeat of trillions of yen of paper losses that we saw in the past,” said Ayako Sera, a market strategist with Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Performance is improving, but we still have to maintain a calm view.”

The fund’s Japanese share holdings returned 6.6 percent over the three months, matching the Topix’s performance. Overseas stocks added 5.5 percent, helped by a 7.6 percent drop in the yen against the euro, the biggest decline since 2013, as well as weakness versus the greenback, both of which increase the value of foreign holdings when repatriated. The MSCI All-Country World Index climbed 3.6 percent last quarter.

“A positive market environment continued” in the June quarter, with good global economic data and corporate earnings supporting increases in stocks, GPIF President Norihiro Takahashi said in a statement Friday. “The yen was in a weakening trend due to expectations that the Federal Reserve will raise interest rates and the ECB will move toward normalizing monetary policy, while the Bank of Japan’s quantitative easing policy continued.”

The fund’s domestic bond holdings, which accounted for 30.5 percent of total assets, managed a nearly flat return. Foreign bonds added 4.5 percent, making up 13.5 percent of the GPIF’s investments at the end of June.

Japanese stocks accounted for 24.4 percent of holdings, while overseas equities were 23.9 percent of assets. The target levels for GPIF’s portfolio are 35 percent for domestic debt, 15 percent for foreign bonds, and 25 percent each for domestic and overseas shares.

Alternative assets accounted for 0.1 percent of GPIF holdings, well below the allowable limit of 5 percent. A recent proposal by the health ministry to allow the fund to trade stock index futures could increase its alternative-asset holdings. The fund has also invested around 1 trillion yen into indexes that track Japanese stocks with high environmental, social and corporate governance scores.

“They’ve only lit the lantern now, but I expect this to keep expanding further,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. on the fund’s ESG investments.