Sweden Pension Manager Who Called Stock Peaks Initiates Bond Purchases
(Bloomberg) – Sweden’s largest pension company has started buying government bonds in the middle of a “paradigm shift” in the market that pushed interest rates to their highest level since 2018.
– We have done little when it comes to long-term interest rates as we believe we get paid well, says Hans Sterte, investment manager at Stockholm-based Alecta, in an interview.
The CIO sees government bonds as “quite attractive” after a long period of razor-sharp returns that forced the company into alternative and riskier asset classes to preserve the return on its $ 117 billion portfolio.
“I’m actually starting to think that government bonds and other slightly longer-term interest rates are starting to get interesting,” Sterte said.
Alecta’s moves reflect the moves of other asset managers that are increasingly moving into the sold government bond market, where exposures can act as a hedge against further economic gloom and weakness in global equities.
Fear of an inflation-driven decline in the stock markets led Sterte to reduce the company’s allocation to equities by 7 percentage points in 2021, while the portfolio’s share of real estate and alternative investments increased to 19%. It is a trade that paid off considering this year’s route in European equities, where Stockholm’s benchmark index falls by more than 16%.
“Diversification has worked as intended,” Sterte said, pointing to a 5% return on an alternative portfolio that includes infrastructure projects and residential buildings.
But at the moment, Alecta’s total portfolio composition is unchanged and Sterte says that it is not time to bargain in shares. “If you were to make major allocation changes now, you’re just guessing,” the CIO said. “And we do not.”
However, Sterte sees the risk of a “flushing out” as significant when it comes to stock markets. During such a capitulation, Alecta will be ready to then redistribute more of the portfolio to equities, he said.
Read more: Sweden’s largest pension company reduces shares due to inflationary concerns
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