Interest rate trends have been one of the biggest challenges for the financial markets in 2023. In the third quarter, interest rate rises caused the stock markets to fall quite sharply amid fears that private consumption and corporate earnings would be adversely affected. In the fourth quarter, these fears were replaced by positive expectations that interest rates would not rise any further – perhaps even the opposite – and that consumers and businesses would be able to cope with the current level of interest rates. We therefore saw a very positive trend in the equity markets towards the end of 2023. The trend in interest rates also benefited the bond markets, which have likewise contributed to healthy returns.
We are very pleased to be able to offer our members high returns in 2023. At the same time, inflation has fallen in 2023, so we are now seeing a significant increase in the purchasing power of our members’ savings.
A return of just over 10 per cent on holiday allowance funds
665,000 members with total assets of DKK 21.3 billion have seen the value of their accrued holiday allowance funds increase by 10.1% in 2023, after deduction of costs and pension return tax. This is a high return, both in absolute terms and in light of the moderate investment risk. Unlike many comparable funds, members have now achieved a positive return overall for the past two years. The negative return in 2022 has been more than offset by the return in 2023.
Returns on cost-of-living allowance funds secure a top position in a European comparison
397,000 members, with total assets of DKK 25.2 billion, have their cost-of-living allowance funds invested in LD Discretionary or in LD Pensions’ equity and bond funds.
Around 90% of the assets are invested in LD Discretionary, which consists of a balanced portfolio with low to moderate risk. In Morningstar’s rating of European funds, LD Discretionary has been awarded 5 stars, which are given to the top 10 per cent of European investment funds that have delivered the best returns relative to their level of risk. The analysis is carried out by Morningstar on the basis of return and risk over the short, medium and long term.
In 2023, LD Discretionary delivered a return of 10.1% before pension returns tax. The returns are also satisfactory over the longer term. The loss in 2022 has been more than offset by the positive performance in 2023, which is due both to a genuinely good result in 2023 and to the fact that LD Discretionary suffered a smaller loss in 2022 compared with similar funds.
The highest return was achieved in LD Pensions’ global equity portfolio, which, amongst other things, reaped substantial gains on the US stock market. For both the Danish and global equity portfolios, the positive performance was largely driven by a small group of companies that delivered very high returns. The LD Environment & Climate portfolio generated a lower return than the global equity portfolio. This is partly due to headwinds facing companies producing renewable energy, and to the fact that the portfolio has no exposure to the global technology companies that rose sharply in value in 2023.
In 2023, there was a positive turnaround in the bond markets, which had been hit by significant rises in interest rates over the previous two years. The two bond portfolios in LD Pensions therefore generated healthy positive returns.
The option to make individual investment choices is available only to members who have accrued cost-of-living allowance funds.
Key facts
- LD Pensions’ total assets at the end of 2023 stood at DKK 46.5 billion, comprising DKK 25.2 billion held by The Cost-of-Living Allowance Fund and DKK 21.3 billion held by The Holiday Allowance Fund.
- In the Cost-of-Living Allowance Fund, approximately 90 per cent of the assets are held in LD Discretionary, with the remainder invested in equity and/or bond portfolios. The equity portfolios are much larger than the bond portfolios.
- In The Holiday Allowance Fund, the entire assets are in a single investment fund. The return is attributed after deduction of pension investment tax.
