Swedish Pension Giant Makes Equities Bet as Recession Risks Fade

(Bloomberg) -- One of Sweden’s biggest pension providers is increasing its exposure to equities after fears of a global recession ebb.

Bjorn Lind, who oversees 140 billion kronor ($14.6 billion) as the head of asset allocation at AMF’s fund unit, says it has raised the proportion of stocks in its portfolios since late August after keeping it at about 60% for most of this year. Lind, who manages AMF’s global funds and the AMF Balanced Fund, said an ideal level would be about two thirds and gradually plans to raise the equities exposure to that level.

Lind’s bet stems from an improving outlook for the global economy, after economic data improved, central banks “softened,” geopolitics “calmed down a bit” and the risk of a hard Brexit decreased, he said in an interview in Stockholm. The fund manager also said that while the latest corporate earnings weren’t “that great,” they still beat expectations.

“We are actually seeing things moving in the right direction,” Lind said. “The recession risk that we saw is significantly lower now.”

AMF is shrugging off concerns that stock market gains may be overdone given the risks of an economic slowdown. The benchmark OMX Stockholm 30 Index of AMF’s home market reached a new historical high this month even as the country’s economy is slowing rapidly, with slumping confidence levels and rising unemployment.

Normal Valuations

According to Lind, valuations aren’t very high right now, but rather normal.

“Of course, it’s more fun to buy cheaply but at the same time, you can’t just say, oh it’s an all-time-high now,” Lind said. “The stock markets trend up over time. North America is trading above it’s average, and Europe and Japan are trading in line with their historical perspective, so no, I’m not worried. I’m not even worried about the U.S.”

Still, in an environment with low interest rates and modest growth, it’s important to have “a balance between growth companies and more classical value/cyclical companies,” Lind said.

AMF Fonder is steering clear of sectors that are sensitive to price components, such as forestry, chemicals and steel companies. Instead, it’s focusing on sectors driven by trends such as automation and digitalization, including Schneider Electric SE, Ingersoll-Rand Plc and ABB Ltd. Lind also likes tech companies such as Microsoft Corp. and Google, which are among the largest holdings in AMF’s Global Fund.

‘Chugging Along’

“They have fantastic market positions and are growing,” Lind said. “Sure, the valuations are beginning to seem a bit rich, especially when it comes to Microsoft, but they are still chugging along.”

The fund also remains overweight in banks, “partly as a cyclical play.” As bank valuations have been pressured for many years, AMF Fonder has added banking stocks mainly in the U.S. but also in Canada, Lind said. Swedish banks remain in the cold due to valuations and because the growing money-laundering scandal in the Baltics that has engulfed Danske Bank A/S and Swedbank AB is a risk factor, Lind said.

AMF Fonder is also steering clear of one of the most awaited initial public offerings in history, that of Saudi Arabia’s Saudi Aramco.

“I’ve met with investment bankers, and we said no to that,” Lind said. “The corporate governance was an obvious factor, oil was another, bad transparency, no real discount, and it wasn’t even cheap. It just wasn’t an option.”

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Niklas Magnusson, Stephen Treloar

©2019 Bloomberg L.P.