Första AP-fonden’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 both annually and over rolling five-year periods. In 2008 the Fund earned a return on listed assets of -22.4 percent, compared to a return of -21.7 percent for the strategic benchmark. Active return for 2008 was -0.7 percentage points.
Three of the Fund’s five investment units made a positive contribution to active return in 2008; foreign exchange and treasury, external management and fixed income.
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 0.5–1.6 percent.
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. 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 2008 was negative.
Five-year overview
Measured over the period from 2003 to 2007, the Fund’s active management produced an annualized return of 0.5 percentage points, with fixed income, foreign exchange and equity positions all delivering above-index returns during the period. For 2008, return on active management was -0.7 percentage points, equal to an investment loss of SEK 1.3 billion before operating expenses. Annualized active return for the period 2004–2008 was 0.3 percentage points. Over the same period, active return has been positive in 63 percent of the months and contributed a total of SEK 3.0 billion to the Fund’s total return.
The target for risk-adjusted return, measured as an information ratio, should exceed 0.3 percentage points over a rolling five-year period. Over the past five-year period, the average annual information ratio was 0.5.
Forecasted and realized tracking error in 2008 for the Fund’s listed assets
Active return, internal and external management
Cumulative active return on listed assets,
January 2004–December 2008
Annualized active return on listed assets
Active return on listed assets in 2008, %-points
| Contibution from: | Per unit¹ | Total |
|---|---|---|
| Global macro allocation | -0.25 |
|
| Tactical asset allocation | -0.26 |
|
| Intern equity management, Sweden | -1.30 |
|
| Intern equity management, Europe | -0.62 |
|
| Internal fixed income management | 0.35 |
|
| Foreign exchange and treasury | 0.18 |
|
| Total internal management |
|
-0.66 |
| External management | 0.36 |
|
| Total internal and external management |
|
-0.52 |
| Securities lending |
|
-0.10 |
| Other |
|
-0.07 |
| Total active return |
|
-0.69 |
