For members of the largest investment fund – LD Discretionary – the return for 2018 was -2.3 per cent. Fortunately, LD Pensions managed to avert a potentially larger loss by reducing its equity exposure early in the year and by having a large proportion of the portfolio invested in bonds, which generated positive returns.
LD Pensions' annual report 2018
Investments are divided into four categories: bonds, credit, equities and alternative investments. The largest of the four categories is bond investments, which generated a positive return of 1.3 per cent, which is very satisfactory given the low interest rates and the low investment risk. However, this was not enough 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 carry much weight.
Hedging against currency risk, primarily against the US dollar, had a negative impact as the dollar strengthened during the year. This contributed to the return on LD Discretionary being lower than the market return, as measured by the portfolio’s benchmark index. Another factor was that the equity investments were unable to keep pace with market developments. An overweight position in Danish equities and environmental and climate-related equities weighed on performance, as they were hit harder by capital losses than the global equity markets in general. Conversely, bond investments contributed a positive excess return relative to the market.
LD Pensions’ reduction in its equity investments at the start of 2018 had a positive effect and meant that members’ losses were reduced.
“It was the major issues surrounding the global economy – a looming trade war between the US and China and Brexit – that caused the stock markets to experience significant volatility. It was difficult to gauge the direction of the market, and the result should be viewed in that light,” says Dorrit Vanglo, director in LD Pensions.
Members whose savings were invested in equity portfolios or in mixed portfolios comprising bonds and shares also suffered losses. By contrast, the bond portfolios and Maj Invest Kontra generated positive returns. Generally speaking, fund selectors fared less well in 2018 than members with all their savings invested in LD Discretionary. This is because fund selectors invest a relatively higher proportion of their assets in shares.
Strategy remains unchanged
Members are not contributing new funds, and consequently a negative return on investment, combined with ongoing payouts, led to a fall in assets of DKK 5.1 billion. Assets stood at DKK 36.5 billion, which was DKK 2.5 billion below the expected level at the start of the year. However, this development falls within the scenarios considered by LD Pensions and therefore does not give rise to any need to adjust the investment strategy or long-term planning. Members continue, to a large extent, to hold on to their accrued cost-of-living allowance funds, which are typically left invested in LD Pensions for 4–5 years after the right to payouts is acquired at the age of 60. The long-term forecast for the Cost-of-Living Allowance funds indicates assets of DKK 17 billion in 2030.
“Developments in 2018 do not call for any adjustment to our strategy, but it is clear that we will maintain a sharp focus on global markets in 2019. Concerns about major political issues and global growth have certainly not disappeared. However, the start of 2019 has been very good, and we are pleased that a large proportion of our members have thus recouped what they lost in 2018,” says Dorrit Vanglo.
The start of 2019 has been positive, which means that the losses from 2018 had been recouped by mid-February.
Current returns in the portfolios
From LD to LD Pensions
In January 2018, the Danish Parliament decided to place a new fund comprising outstanding holiday allowance with Dyrtidsfonden. A small proportion of the holiday allowance funds will be transferred to the fund in 2020, whilst the fund’s balance sheet total at the start of 2021 is expected to be approximately DKK 100 billion. The return on investment and the performance of the fund’s assets in 2018 therefore relate solely to the cost-of-living allowance funds.
In future, two separate funds – The Holiday Allowance Fund and The Cost-of-Living Allowance Fund – will be managed under the same legal entity. In this connection, LD has changed its name to LD Pensions. The term ‘The Cost-of-Living Allowance Fund’ is used to refer to the frozen cost-of-living allowance funds.
