Summary of the 2018 Annual Report
(News article published on 28 February 2019)
The 2018 annual report for LD Pensions shows an investment loss of DKK 1.3 billion. The result is less than satisfactory, but must be viewed in the context of the major challenges facing the financial markets.
For members in the largest investment portfolio – LD Discretionary – the return for 2018 was -2.3 per cent. Fortunately, LD Pensions prevented a potentially greater loss by reducing its equity exposure at the start of the year and by allocating a large proportion of the portfolio to bonds that generated positive returns.
The investments are divided into four categories: bonds, credit, equities and alternative investments. The largest of these four categories is bond investments, which generated a positive return of 1.3 per cent. This is very satisfactory given the low interest rate environment and the low investment risk. However, this was not sufficient to offset the losses of 2.2 per cent on credit and 6.7 per cent on equities. On the other hand, alternative investments made a positive contribution of 3.0 per cent, but the portfolio, which is currently being restructured, did not have a significant impact on the overall picture.
Hedging currency risk, primarily the USD, had a negative impact, as the USD strengthened during the year. This was compounded by the fact that the return on LD Discretionary was lower than the market return as measured by the portfolio’s benchmark index. It was also significant that equity investments did not keep pace with market developments. An overweight position in Danish equities and environment & climate equities had a negative impact on the result, as these segments were hit harder by price falls than the global equity markets. Conversely, the bond investments generated an excess return compared with the market.
“It was the major issues facing the global economy, combined with the threat of a trade war between the US and China and Brexit, that caused the stock markets to experience significant volatility. It was difficult to navigate these kinds of markets, and the result must be viewed in that light,” says Dorrit Vanglo, CEO of LD Pensions.
Furthermore, members whose savings were invested in equity portfolios or in balanced portfolios comprising fixed-income assets and equities suffered losses. However, the bond portfolios and Maj Invest Kontra generated positive returns. In general, the results in 2018 for members who had chosen their own asset allocation showed greater losses than those for members who had placed their entire savings in LD Discretionary. This is because these members invest a relatively higher proportion in equities.
The strategy remains in place
Members are not contributing new funds, and consequently a negative investment return, combined with ongoing payments, led to a decrease in assets of DKK 5.1 billion. The result for 2018 was DKK 36.5 billion, which was DKK 2.5 billion below the level expected at the start of the year. However, this development falls within the scenarios used by LD Pensions and therefore does not necessitate any adjustment to the investment strategy or long-term planning. Members continue to keep their savings with LD Pensions – typically for 4–5 years – after becoming eligible for withdrawal at the age of 60. The long-term forecast for the funds in LD Pensions indicates that assets in 2030 will amount to DKK 17 billion.
"The developments in 2018 do not call for a change in strategy, but it is clear that we will be keeping a close eye on the global markets in 2019. Concerns about major political issues and the global growth outlook have certainly not gone away. However, the start of 2019 has been very positive, and we are pleased that a large proportion of our members have already recouped their losses from 2018,” says Dorrit Vanglo.
2019 has got off to a positive start, meaning that the losses incurred in 2018 had already been recouped by mid-February.
From one fund to two funds
In January 2018, Parliament decided to establish a new fund for holiday pay, the Holiday Pay Fund, at LD Pensions. A small portion of the holiday pay will be transferred to the fund in 2020, whilst the fund’s balance at the start of 2021 is expected to amount to approximately DKK 100 billion. In 2018, the return on investments and the growth in assets relate solely to the Cost-of-Living Allowance Fund.
In future, two separate funds – the Holiday Allowance Fund and the Cost-of-Living Allowance Fund – will be managed under the same legal entity.
