World's Biggest Pension Fund Has Best Gain in Three Years

(Bloomberg) -- The world’s biggest pension fund posted its best annual gain in three years despite a loss during the final quarter of its business calendar.

World's Biggest Pension Fund Has Best Gain in Three Years

Japan’s Government Pension Investment Fund returned 6.9 percent, or 10.1 trillion yen ($91 billion), in the year ended March 31, with assets totaling 156.4 trillion yen, it said in Tokyo on Friday. Domestic stocks were the fund’s best performing investment, adding 5.5 trillion yen, followed by a 3.5 trillion yen increase in overseas shares. Domestic bonds gained 362 billion yen, while overseas debt rose 674 billion yen.

Six quarters of gains boosted assets to a record at the end of 2017. The GPIF incurred losses during the first three months of this year as investor sentiment turned from optimism over U.S. tax cuts to fears of a trade war. A global equity rout and plunge in Treasuries in its final fiscal quarter kept the fund from beating a record 12 percent annual gain set three years ago.

“The environment is favorable for stock investments for the time being as the global economy remains solid and inflation is benign,” said Naoki Fujiwara, chief fund manager for Shinkin Asset Management Co. in Tokyo. “Yet, from a long-term perspective, the ratio of risk assets in its portfolio may be too much.”

World's Biggest Pension Fund Has Best Gain in Three Years

The GPIF doubled stock holdings and cut bonds as part of a strategy revamp in 2014 with the assumption that rising prices would erode the spending power of Japan’s low-yielding debt. Since then, the shift has helped the fund generate a positive return for three out the past four fiscal years.

“Domestic and overseas stocks rose largely supported by a robust economic environment and solid corporate earnings, in addition to” political stabilization in Europe and expectations over an economic boost from a U.S. tax cut, GPIF President Norihiro Takahashi said in a statement Friday. “However, toward the end of the fiscal year, domestic and overseas stocks narrowed their gains on uncertainties over U.S. trade policy, while the yen strengthened against the dollar.”

Trade friction between the U.S. and China has become a big issue when assessing the investment environment, Takahashi said at a press conference in Tokyo. In addition, he said the fund is cautious about investing in Japanese bonds with a maturity less than 10 years because of negative yields.

Apr.-June
2017 return 
July-Sept. 
2017 return
Oct.-Dec. 
2017 return
Jan.-March
2018 return
Fiscal year
return
Domestic
bonds
-0.01%0.2%0.4%0.3%0.8%
Domestic
stocks
6.6%4.8%8.7%-4.7%15.7%
Foreign
bonds
4.5%2.5%1.2%-4.3%3.7%
Foreign
stocks
5.5%5.6%5.7%-6.4%10.2%

During the fiscal year, the Topix index gained more than 13 percent while benchmark Japanese government bonds were little changed. The MSCI All-Country World Index of global stocks rose 13 percent.

Japan’s currency strengthened 4.8 percent against the dollar and U.S. Treasuries returned 0.4 percent.

GPIF asset allocation
as percent of total
Apr.-June
2017
July-Sept.
2017
Oct.-Dec.
2017
Jan.-March
2018
Domestic bonds30.5%28.5%27.7%27.5%
Domestic stocks24.4%24.4%26.1%25.1%
Foreign bonds13.5%14%14.1%14.8%
Foreign stocks23.9%24%25.1%23.9%
Short-term assets7.7%9.1%7.1%8.7%

GPIF has a general target to keep 25 percent of its basic portfolio in domestic stocks and 25 percent in overseas shares. The permissible range of deviation is 9 percent for local equities and 8 percent for stocks abroad. The fund holds the majority of its stock investments in strategies that track indexes.

Alternative assets accounted for 0.13 percent of GPIF holdings, below the allowable limit of 5 percent.

Top 3 
biggest 
holdings 
Domestic 
bonds
Domestic 
stocks
Foreign bondsForeign 
stocks
No. 1Japan govtToyota MotorU.S. govt Apple
No. 2Japan Expressway
Holding and Debt Repayment Agency 
Mitsubishi UFJ FinancialItaly govt Microsoft
No. 3Japan Finance Organization for MunicipalitiesSumitomo Mitsui Financial Group France govt Amazon.com 

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