World’s Biggest Pension Fund Pulls Off an Annual Gain, Despite December Rout
Biggest Pension Fund Achieves Annual Gain Despite December Rout
(Bloomberg) -- The world’s biggest pension fund posted a gain for a third consecutive fiscal year as overseas stocks rallied and strength in the dollar versus the yen helped boost the value of its assets abroad.
Japan’s Government Pension Investment Fund returned 1.5%, or 2.4 trillion yen ($22.1 billion), in the year ended March 31, with assets totaling 159.2 trillion yen, it said Friday in Tokyo. Overseas stocks were the fund’s best performing investment, handing it a gain of 3.1 trillion yen, while domestic equities lost 2.1 trillion yen. Its investment income was 698 billion yen for overseas bonds and 596 billion yen for domestic debt.
The GPIF’s recovery from a record 14.8 trillion yen loss during the October-December quarter comes as Japan heads into this month’s national elections, where social security ranks as the most important issue in media polls. Global equities and bonds rallied in the first three months of 2019 as U.S. and European central banks turned dovish amid U.S.-China trade tensions.
“While interest rates remain low, investments that can generate returns are getting limited,” said Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management Ltd. in Tokyo. “In such an environment, we think there is no other choice but to take on risks in assets such as stocks and alternative investments if you want to improve returns.”
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 four out of five fiscal years.
| Apr.-June 2018 return | July-Sept. 2018 return | Oct.-Dec. 2018 return | Jan.-March 2019 return | Fiscal year return | |
| Domestic bonds | +0.1% | -0.8% | +1% | +1.1% | +1.4% |
| Domestic stocks | +1% | +5.9% | -17.6% | +7.6% | -5.1% |
| Foreign bonds | +0.6% | +1.8% | -2.7% | +3.2% | +2.7% |
| Foreign stocks | +5.2% | +7.1% | -15.7% | +13.9% | +8.1% |
During the fiscal year, the MSCI All-Country World Index of global stocks rose 0.5% and the S&P 500 Index gained 7.3%, while the Topix index dropped 7.3%. Yields on 10-year U.S. Treasuries fell 33 basis points in the period, while benchmark Japanese government bonds yields dropped 14 basis points. Japan’s currency weakened 4.1% against the dollar.
“The last fiscal year was one with very high volatility,” GPIF President Norihiro Takahashi told reporters on Friday. “This high volatility will likely continue this year.”
| Asset allocation as percent of total | March-end |
| Domestic bonds | 26.3% |
| Domestic stocks | 23.6% |
| Foreign bonds | 17% |
| Foreign stocks | 25.5% |
| Short-term assets | 7.7% |
The GPIF has a general target to keep 25% of its basic portfolio in domestic stocks and 25% in overseas shares. The permissible range of deviation is 9% for local equities and 8% for stocks abroad. The fund holds the majority of its stock investments in strategies that track indexes.
Alternative assets accounted for 0.26% of GPIF holdings, below the allowable limit of 5%.
| Top 3 biggest holdings | Domestic bonds | Domestic stocks | Foreign bonds | Foreign stocks |
| No. 1 | Japan govt | Toyota Motor | U.S. govt | Microsoft |
| No. 2 | Japan Expressway Holding and Debt Repayment Agency | SoftBank Group | France govt | Apple |
| No. 3 | Japan Finance Organization for Municipalities | Mitsubishi UFJ Financial Group | Italy govt | Amazon.com |
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net;Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net
To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Kurt Schussler
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