Operations and results in 2007Internal management
At year-end 2007 the Fund had assets of SEK 140.1 billion under internal management, equal to 64% (66%) of total net assets. These assets are managed in five units: Global Macro Allocation, Tactical Asset Allocation, Equities, Fixed Income and Foreign Exchange, all of which are active. Overall, the internal investment units contributed 0.4 percentage points to the Fund's total active return in 2007.
The Fund's active management model has been built up successively since 2001. Over the past five-year period, the overall contribution of internal management to the Fund's total active return has been 0.35 percentage points annually.
Global Macro Allocation
The Global Macro Allocation unit produced a weakly negative result in 2007, largely due to the year's high volatility. Despite a significant reduction of risk, trading losses arose in late autumn when market movements grew exceptionally powerful. Above all, it proved difficult to avoid losses in model-based positions in the autumn's turbulent financial climate, while the discretionary positions showed positive performance during the year.
All in all, the unit generated a return that was nearly 0.05 percentage points below index.
Tactical Asset Allocation
In 2007, the Tactical Asset Allocation Unit made a positive contribution of 0.05 percentage points to the Fund's active return. The positive result was generated through positioning in currencies, while allocation between the equities and bonds asset classes produced a slight negative return.
Internal equity management is divided between two mandates, one Swedish and one European, which made a combined positive contribution of 0.18 percentage points to the Fund's total active return.
Through active management, the Swedish equity portfolio outperformed its index by just under 0.8 percentage points. A large share of the positive contribution came in the first half of the year when the Fund was overweighted in ABB, Alfa Laval and SSAB. These positions were reduced after the price upturn, which was favourable.
The Fund was also overweighted in the medical technology company Getinge and the telecom operators Tele2 and Millicom, which noted strong share price growth in 2007. A cautious stance towards forestry and property companies also paid off, since these sectors showed relatively weak development.
The portfolio benefited additionally from an underweight throughout the year in Ericsson stock, which showed feeble development. Among the mid-sized companies, positive contributions came from an overweight in MTG at the end of the year and underweights in Eniro and Nobia.
At year-end 2007 the market value of the Swedish equity portfolio was SEK 27.8 billion, divided between some 50 companies.
Largest Swedish equity holdings at 31 Dec. 2007
|Company||Market value, SEK m||% of the Fund’s net assets|
|Hennes & Mauritz||2,408||1.1|
|Ericsson A and B||1,950||0.9|
|Volvo A and B||1,932||0.9|
Largest voting rights in Swedish holdings, 31 Dec. 2007
|Company||Market value, SEK m||% of votes|
|D. Carnegie & Co||233||2.4|
Largest active positions in the Swedish equity portfolio, 31 Dec. 2007
|Company||Index weighting, %||Indexvikt, %||Active weighting, %-points|
In 2007 the Equities unit focused on increasing risk utilization in the sector manager portfolios, partly through greater use of derivatives for short positions. One the whole, the portfolio outperformed index by jost over 0.5 percentage points thanks to significantly above-index returns in four sector portfolios.
Overweights in the German industrial companies GEA and Siemens and the wind power producer Vestas Vind were a major factor in enabling the portfolio to outperform its machining industry index by more than 8 percentage points.
In the Financials portfolio, the excess return of just less than 1% is attributable to selection of banks in France, Greece and Spain and investment banks. In the IT and Telecoms sectors, overweights in Telefonica, Nokia and ST Microelectronics contributed strongly to the excess return of close to 4 percentage points. For the Materials portfolio, the excess return of 1.5 percentage points is explained by overweights in Vedanta and Arcelor Mittal and an underweight in Norske Skog.
At the end of 2007 the Fund had European equities under management of SEK 30.8 billion.
At year-end 2007 the Fund's fixed income portfolio amounted to SEK 84.7 billion. Of this total, SEK 80.1 billion is managed internally, equal to 36.6% of the Fund's net assets.
In 2007 the portfolio delivered a return of more than 0.5 percentage points above index and contributed 0.20 percentage points to the Fund's total active return.
Economic development in the first half of the year was dominated by relatively strong global growth, high capacity utilization and rising fears of a pick-up in inflation. In this climate, the Fund's positioning for rising interest rates made a positive contribution to portfolio return.
The second half of the year saw escalating concerns about developments in the US housing market and their possible impact on the real economy. During this period, a favourable country allocation and an underweight in US corporate bonds added further to the portfolio's excess return.
By taking more positions that balance each other out, the unit achieved a more even and stable return during the year.
The Fund has chosen to handle foreign exchange as a separate asset class. Responsibility for currency hedging operations has been assigned to the foreign exchange and treasury unit. The unit also takes active positions in some 20 currencies as a means for further increasing return on the unit's investments.
The dominant theme in the foreign exchange market during 2007 was a continued downward trend for the US dollar, which lost ground against all developed currencies with high volatility in both high-rate and low-rate currencies.
The Swedish krona gained against the US dollar, but weakened against nearly all other developed currencies with the exception of the British pound. Against the euro, the krona fell by approximately 5%.
In 2007 the unit delivered a positive return of 0.02 percentage points in active currency positioning and management of the Fund's currency hedging operations.
The unit applies a systematic and quantitative approach in its positioning and a business model based on diversification and spread of risk between currency areas.
The unit is also responsible for the Fund's securities lending, for which the Fund has chosen to delegate program management to its custodian bank. The program made a positive contribution of 0.04 percentage points to the Fund's return, bringing the foreign exchange unit's total contribution to 0.06 percentage points.