The more modest first quarter of the GPIF seen as a welcome return to normality | Asset owners
The recent first quarter results of the Government Pension Investment Fund of Japan are seen by analysts as a welcome return to normalcy – a year after an exceptional performance – and a chance to see more clearly whether the fund’s long-term strategies are carrying their weight. fruits.
The GPIF posted a quarterly return of 2.68% from April to June, lower than the average quarterly return of 5.8% for the last fiscal year ended in March, driven by losses in the national stock market.
Previously, GPIF posted a record 25% return in the 12 months ended March, fueled by the global stock rally. However, the following quarter’s results, released on August 6, showed a 0.25% loss on the backs of domestic stocks. Foreign stocks were its best performer with an 8.62% gain.
In its bond portfolio, foreign bonds generated returns of 1.87%, while Japanese bonds contributed 0.47%.
Source: GPIF (Click for full view)
In comparison over the same period, Alaska Permanent Fund Corporation posted a return of 5.47%, including a gain of 6.47% on public stocks and a return of 2.27% on fixed income securities.
On a positive note, the world’s largest pension fund grew for the fifth consecutive quarter since April last year, pushing its cumulative returns since 2001 above the 100,000 billion yen mark (903 billion dollars) for the first time.
The performance of each asset class outperformed benchmarks, bringing total assets under management to 191.6 trillion yen ($ 1.73 trillion) at the end of June.
TOO GOOD TO REPEAT
“I don’t think we can compare the first quarter to fiscal 2020 in a meaningful way. It was just too remarkable, ”said Gary Smith, Managing Director of Sovereign Focus, adding that GPIF was simply returning to normal returns.
He said the results are a chance to see if the changes in asset allocation will pay off in the long run.
Since April of last year, GPIF has changed its asset allocation strategy, moving 10% of assets from Japanese bonds to foreign bonds, and dividing the portfolio equally into four segments covering bonds and equities. national and foreign.
It also lowered U.S. government bonds and bills to 35% of its foreign bond positions in the 12 months ended March, down from 47% previously, according to Bloomberg.
“GPIF is probably more bearish on the US than on other funds right now. Whether this strategy will pay off in the long term remains to be seen, ”said Diego López, Managing Director of Global SWF.
“GPIF’s allocation is unique in the sense that alternative asset classes still only represent a tiny part of the portfolio. However, the five-year strategy shows no willingness to change the weight of bonds and equities at the moment, ”he added.
The Japanese pension fund only holds 0.76% of alternative assets in the $ 1.73 trillion portfolio, with a cap of 5% by 2024. However, it does not consider the amount of the commitment. as a goal, said a spokesperson for GPIF. AsianInvestor.
Alternative assets are seen as effective vehicles for generating alpha in times of recession. Alaska PFC gained more than 5% in alternative assets from April to June.
In the last 12 months ended in March, Japanese stocks were second behind foreign stocks, generating an average return of 9.1% each quarter.
“In Japan, the domestic stock market declined slightly amid continued cautiousness over the re-expansion of coronavirus infection. The yen also depreciated against the dollar and the euro, ”wrote GPIF chairman Masataka Miyazono in his comments on the first quarter result.
From April to June, TOPIX slipped 0.33% and Nikkei 225 slipped 2%, but the GPIF still outperformed with losses of just 0.25%.
The market, meanwhile, expects the negativity in the Japanese stock market to subside in the second half of the year.
“Looking ahead, as COVID-19 continued to weigh on economic activity, corporate profits are visibly picking up in Japan,” said Noriko Kuroki, investment specialist for emerging markets and Asia-Pacific equities at JP Morgan Asset Management.
“Tendencies [of digitalization and automation] offer many attractive investment opportunities for bottom-up investors to benefit from the structural changes underway in the country, ”she said. AsianInvestor.
Ahead of the general election in Japan later this year, the political situation is expected to remain stable as there is no credible opposition to the ruling Liberal Democratic Party, she added.