Summary of the annual report 2018
(News article published 28.02.2019)
The annual report for LD Pensions 2018 shows an investment loss of DKK 1.3 billion. The result is less satisfactory, but must be seen in the light of the major challenges within the financial markets.
For the members in the largest investment portfolio - LD Discretionart - the return for 2018 was -2.3 per cent. Fortunately, LD Pensions prevented a potentially larger loss by reducing the equity exposure at the start of the year and by having placed a large share of the portfolio in bonds that yielded positive returns.
The investments are divided into four groups: bonds, credit, equities and alternative investments. The largest of the four groups is bond investments, which yielded a positive return of 1.3%. This is very satisfactory considering the low interest rate level and the low investment risk. However, this was not sufficient to compensate for the losses of 2.2 per cent on credit and 6.7 per cent on equities. On the other hand, alternative investments contributed positively by 3.0 per cent, but the portfolio, which is undergoing restructuring, did not weigh heavily in the overall picture.
Hedging currency risk, primarily the USD, contributed negatively, because the USD was strengthened during the year. This added to the fact that the return on LD Discretionary was lower than the market return measured by the portfolio’s benchmark index. It was also significant that equity investments did not match the market developments. An overweight in Danish equities and environment & climate equities affected the result negatively, because these segments were hit harder by price losses than the global equity markets. Conversely, the bond investments contributed with excess return compared to the market.
“It was the major issues of the global economy in combination with a threatening trade war between the US and China and Brexit, which pushed the stock markets into great fluctuations. It was difficult to manoeuvre in these types of markets, and the result must be seen in that light,” says Dorrit Vanglo, CEO of LD Pensions.
Also, members with their savings placed in equity portfolios or in balanced portfolios with fixed income and equities were affected by losses. However, the bond portfolios and Maj Invest Kontra yielded positive returns. In general, the results in 2018 for the members, who had chosen their own allocation, suffered greater losses than members with their entire savings placed in LD Discretionary. This is because these members invest relatively more in equities.
Strategy is maintained
The members do not deposit new funds, and therefore a negative investment return, together with the 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 expected level at the start of the year. However, the development falls within the scenarios that LD Pensions work with, and therefore does not give rise to adjustment in the investment strategy or the long-term planning. The members continue to keep their savings in LD Pensions - typically 4-5 years - after the right to disbursement has been obtained at the age of 60. The long-term forecast of the funds in LD Pensions, indicate that the assets in 2030 will amount to DKK 17 billion.
"The development in 2018 does not lead to an adjustment of the strategy, but it is clear that we keep sharp attention on the global markets in 2019. The concerns about the major political issues and the global growth outlook has certainly not disappeared. But the start of 2019 has proven really good, and we are pleased that a large part of the members have already regained what they lost in 2018,”says Dorrit Vanglo.
2019 has had a positive start, which means that the 2018 losses already were recovered mid-February.
From one fund to two funds
In January 2018, parliament decided to place a new fund with holiday allowance, the Holiday Allowance Fund, at LD Pensions. A small part of the holiday money will be transferred to the fund in 2020, while the fund's balance at the beginning of 2021 is expected to amount to approx. DKK 100 billion. In 2018 the return on investments and the development of wealth solely relate to the Cost-of-Living Allowance Fund.
In the future, two separate funds - the Holiday Allowance Fund and the Cost-of-Living Allowance Fund - will be managed under the same legal entity.