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Listed equities

Enabling return and stewardship

Nearly half of AP3’s assets are invested in stock markets worldwide. Equity investments have long been a central part of AP3’s management model, and the fund has several experienced employees in the area. The group’s strategy of actively managing capital provides good opportunities for effective corporate governance for long-term value creation.

Investment with market risk

Global stock markets are an important source of AP3’s returns but also periodically contribute to value losses in the portfolio. The risk partly explains the higher return that equity investments provide over time. Investing in different geographies, sectors and companies also provides good opportunities to take part in economic growth and new innovations.

 As of 6/30/2022

 

Listed equities 42.1 percent of the portfolio
Return -20.8%
Contribution -9.8%

Increased degree of active management

As a long-term investor, AP3 monitors and analyzes societal changes and economic trends that affect companies’ opportunities for value creation. Active management aims to adjust the exposure to different parts of the market and to buy or sell individual companies in order to generate a higher return on the portfolio over time. It also entails a great deal of responsibility and opportunities to influence the development of individual companies and society at large, something that AP3, as a responsible investor and shareholder, utilizes through its sustainability work. The equities department at AP3 has a clear strategic focus on an increased degree of internally managed capital through increased risk mandates that are supplemented by external mandates, with a focus on emerging markets and smaller companies outside Sweden.

Listed shares - geographical distribution as of 12/31/2021

Emerging markets 12
Asia-Pacific 8
North America 38
Europe 15
Sweden 26

Internal / external management per region, as of 12/31/2021

Internal managementExternal management
Sweden 100
Europe 80
North America 45
Asia-Pacific 5
Emerging markets 5

Spotlight on corporate stewardship

In AP3’s experience, companies which are well managed produce higher risk-adjusted returns over time. Successful integration of sustainability into a company’s business operations boosts competitiveness and profitability. Equity markets also value such companies more highly for reasons of quality and stability.

Swedish equities – effective corporate governance and good investment opportunities

Sweden accounts for a substantial part of the Fund’s equity portfolio. Swedish companies are highly competitive in the global market place across sectors represented on the Stockholm exchange. AP3 has a home bias in listed equity investments, allocating a larger share of the Fund’s assets to Swedish equities than warranted by its share of global market capitalization. This is because AP3’s portfolio managers have good knowledge of the Swedish market and are well placed to exercise effective corporate stewardship in Swedish companies. Moreover, the investment opportunities available in the Swedish market are relatively attractive.

Engineering and IT are two sectors in which Sweden has a global edge. Other sectors that stand out internationally are pharmaceuticals, consumer goods and commodities. The emergence of new dynamic companies in the healthcare and entertainment sectors further increases AP3’s scope to compile a diversified domestic portfolio. Small companies bring large responsibilities In Sweden, AP3 is an active owner and is well placed to effectuate active corporate stewardship because the Fund often holds significant equity holdings in small cap companies and is familiar with their operating conditions. The interplay between an institutional investor and an emerging business comes with a large measure of responsibility and an opportunity for favorable returns over time.

As of 06/30/2022

Equities Sweden 11.7 percent of the portfolio
Return -26.3%
Contribution -3.3%

Tailored global equity management

Broad-based market exposure is a cost-effective strategy for gaining a share of global economic growth and corporate innovation. In the last decade the markets have increasingly rewarded business quality and stable profitability with high valuations. The growing market focus on sustainability underlines the importance of AP3’s
corporate engagement activities to improve the equity portfolio’s risk profile. It also highlights the increasing demands on companies to play an active role in social development. Competent management of supply chains, personnel and materials is especially important in a crisis. Although AP3 holds small ownership stakes in global companies, the Fund’s influence over a company’s strategic direction can be significant when combined with that of other investors.

As of 06/30/2022

Equities Global 30.3 percent of the portfolio
Return -18.2%
Contribution -6.4%