Operations and results in 2007Active return
The Fund's investment model is based on active management of the Fund's assets. The goal is to outperform return on the strategic benchmark by 0.5 percentage points annually.
In 2007 the Fund earned a return on listed assets of 4.4%, compared to 4.0% for the strategic benchmark. The achieved active return of 0.4 percentage points is equal to investment gains of SEK 0.9 billion before expenses.
Of the Fund's five in-house units four made a positive contribution to active return in 2007. The top performers were internal equity and fixed income management. The year's contribution from external management was neutral.
Active risk
The Fund's active positioning gives rise to active risk, i.e. fluctuations in return caused by over- and underweights relative to the strategic benchmark. Active risk is an important metric that is both measured historically and forecasted continuously. The Fund's realized active risk during the year was in the range of 0.4%-0.6%.
|
Active return for listed assets 2007
Contribution from: | SEK bn | %-points |
|---|---|---|
| Global macro allocation | -0.10 | -0.05 |
| Tactical asset allocation | 0.10 | 0.05 |
| Internal equity management | 0.37 | 0.18 |
| Internal fixed income management | 0.41 | 0.20 |
| Foreign exchange and treasury | 0.12 | 0.06 |
| Total internal management | 0.89 | 0.44 |
| External management | -0.02 | -0.01 |
| Total active return | 0.87 | 0.43 |
Risk-adjusted return
The Fund works with a large number of independent internal and external mandates to achieve a high degree of risk diversification in the portfolio. The idea is for risk in the individual mandates to partially offset each other when the Fund's total risk is aggregated.
The fixed income unit trades in bonds worldwide towards the goal of creating an excess return. This is done by monitoring and assessing economic and political trends, the market's positioning and future offerings from various issuers and their creditworthiness.
In evaluation of the chosen investment strategies, it is important to not only measure return but also consider the level of risk with which this return was achieved. The most widely used measure of a manager's risk-adjusted return is the information ratio, which relates active return to the risk taken by deviating from index. The information ratio for 2007 was 0.8.
Five-year overview
Measured over the past five-year period, the Fund's management has produced a positive active return, averaging at 0.5 percentage points per year. The Fund has thus met its active return target for the five-year period, in which active return has been positive or neutral in 60% of the months and contributed a total of SEK 4 billion to the Fund's net investment income.
The Fund also has a target for risk-adjusted return, measured as an information ratio that should exceed 0.3 over a rolling five-year period. Over the past five-year period, the average annual information ratio was 1.1.
This strong goal attainment in risk-adjusted terms is made possible by the Fund's large number of independent investment processes with relatively low correlation that work together to create a high degree of diversification.
Cumulative active return 1 Jul. 2001 – 31 Dec. 2007
- Cumulative active return
Realized tracking error in Jan-Dec for the Fund’s listed
assets (3 month rolling daily data)
Annualized active return on listed assets, 1 Jan. 2003 – 31 Dec. 2007
- Outcome
- Target
- Annualized active return
Active return, internal and external management
- Internal management
- External management
