The return on investment in the first half of 2022 was DKK -3.9 billion after pension return tax, comprising DKK -2.5 billion from the cost-of-living allowance funds and DKK -1.4 billion from the holiday allowance funds. Both shares and bonds have contributed to the negative result. However, there have been significant positive contributions from inflation-linked products and the revaluation of the holiday allowance funds that employers have chosen to retain within their organisations. This has mitigated the negative trend in the financial markets.
High inflation has proved more persistent than initially thought, and central banks have responded with significant tightening measures in the form of interest rate rises. At the same time, the war in Ukraine has led to uncertainty regarding energy supplies in Europe. Fears of an economic downturn have therefore intensified.
For the rest of the year, the financial markets are expected to remain characterised by considerable uncertainty. Our aim is to generate a stable return over a longer time horizon, but in the current situation we have chosen to reduce our exposure to equity risk.
Lars Mayland Nielsen continues:
“Looking further ahead, a normalisation of the interest rate markets following the last 10 years of very accommodative monetary policy with negative interest rates could prove beneficial. This will lay the groundwork for higher ongoing returns on bond investments going forward.”
The cost-of-living allowance funds and holiday allowance funds were allocated differently from 2021 onwards
LD Pensions manages both the Cost-of-Living Allowance Fund and The Holiday Allowance Fund.
In the Cost-of-Living Allowance Fund, just over 90 per cent of the assets are invested in the ‘LD Discretionary’ investment fund. In the first half of 2022, the portfolio delivered a return of -8.5% to its members. This follows several years of positive returns. Over a period of just two years, members of LD Discretionary have achieved a total return of 6.7%, including the loss in the first half of 2022. This is satisfactory in light of the major shifts in economies around the world.
For members with accrued holiday allowance funds, the crediting of returns did not begin until 2021. The investment portfolio was built up throughout 2021 in line with payments from employers. During the period of early payouts, the majority of the funds were invested in highly liquid bonds. Consequently, it was not possible in 2021 to achieve a return high enough to withstand the negative developments in the financial markets in 2022. By the end of the first half of 2022, the value of the holiday allowance funds had fallen by 4.7%.
“We are in the process of building a balanced risk profile for the Holiday Allowance Fund to ensure sound long-term value creation for our members’ accrued holiday allowance funds,” explains Lars Mayland Nielsen.
Returns as a percentage in the Cost-of-Living Allowance Funds’ portfolios
| Investment fund | First half of 2022 | 2 months: July–August 2022 | 2021 | 2 years: June 2020–June 2022 |
|---|---|---|---|---|
| LD Discretionary | -8.5 | 1.5 | 8.3 | 6.7 |
| LD Danish Equities | -18.1 | 7.1 | 17.5 | 23.0 |
| LD Global Equities | -13.5 | 7.8 | 29.0 | 26.6 |
| LD Environment & Climate | -19.2 | 10.5 | 30.8 | 29.6 |
| LD Short-Term Bonds | -3.7 | -1.0 | -1.2 | -4.7 |
| LD Mixed Bonds | -6.4 | -0.1 | 0.0 | -6.1 |
| Bank Invest Selects | -14.5 | 3.4 | 15.3 | 6.8 |
| Danske Invest Chooses | -11.0 | 2.1 | 5.2 | -0.3 |
| Jyske Invest Selects | -12.7 | 4.8 | 12.2 | 3.7 |
| Nordea Invest Bonds | -8.3 | -0.8 | -2.9 | -10.2 |
Return as a percentage in the Holiday Allowance Fund
| The Holiday Allowance Fund | Second half of 2022 | 2 months: July–August 2022 | 2021 | Jan 2021–Aug 2022 |
|---|---|---|---|---|
| Attributed return after pension return tax | -8.9 | 2.5 | 4.6 | -2.3 |
