World’s Biggest Pension Fund Pulls Off an 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.”

World’s Biggest Pension Fund Pulls Off an Annual Gain, Despite December Rout

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 totalMarch-end
Domestic bonds26.3%
Domestic stocks23.6%
Foreign bonds17%
Foreign stocks25.5%
Short-term assets7.7%

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 bondsForeign
stocks
No. 1Japan govtToyota MotorU.S. govtMicrosoft
No. 2Japan Expressway
Holding and Debt Repayment Agency
SoftBank Group France govtApple 
No. 3Japan Finance Organization for MunicipalitiesMitsubishi UFJ Financial Group Italy govtAmazon.com

©2019 Bloomberg L.P.

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