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Fixed income and currencies

To manage risk and spur green transition

The fixed income and FX team at AP3 manages the Fund’s fixed income investments, which are subdivided into government, inflation-linked and corporate securities. The team is also responsible for currency management, including hedging, active currency risk-taking and the treasury function.

Fixed income investments

AP3 manages the bond portfolio internally and actively. A large portion of the investments are liquid, which is a prerequisite for active fixed income management. The current low interest rate environment means that expected returns are very low, making it even more important to invest cost-efficiently.

Outcome 2021

Fixed income investments 27.4 percent of the portfolio
Return +0.2%
Contribution +0.1%

Green bonds – good progress towards target

AP3 is among the pioneers of the green bond market, having made its initial investment in 2008 in the first green bond issued by the World Bank. The Fund’s green bond holdings have steadily grown since then. AP3 has a goal of raising green bond holdings to SEK 30 billion by 2025 because these instruments are an effective way to mitigate climate change while offering a satisfactory return in a bond market context. Green bonds are a financial instrument whose capital is used to fund environmental projects, an investment model that directly impacts the borrower’s activities. The ability to attract capital by issuing green bonds also has an effect on the issuer’s focus and commitment to environmental issues.

AP3 has created a diversified portfolio of green bonds invested. Each green investment is verified by the sustainability team that is separate from the fixed income team in order to ensure that the green bonds really are green. AP3 has also contributed to the development of the green bond market through its real estate companies Vasakronan and Hemsö, which issue green bonds to raise finance. In 2013, Vasakronan became the first company in the world to issue a green bond.


Sustainable bonds - a slightly broader perspective

The fund is a pioneer in green bonds and that market has shown fantastic growth since its inception. In recent years, a market for sustainability-related bonds with a slightly different angle has also opened up. The market for these sustainability, sustainability-linked and social bonds has shown high growth and the fund has found several interesting investment opportunities in these areas. We are following the continued development with interest.

Fixed-income portfolio structure (including 18% green bonds)

Government and government guaranteed bonds 61
Inflation-linked bonds 20
Corporate bonds 19

Fast growth in the green bond portfolio since 2008

2008 480
2009 641
2010 871
2011 1017
2012 1368
2013 2342
2014 3861
2015 4626
2016 9538
2017 13398
2018 16346
2019 17429
2020 18735
2021 22816


AP3’s currency exposure was 21.1% (17.5) at yearend 2021. Currency exposure varied from 17.1% to 22.2% during the year. The currency asset class relates to AP3’s net income from currency exposure after hedging against changes in currency values relative to the Swedish krona and from direct currency strategies. Currency positions are taken to increase returns and to reduce risk in the overall portfolio. The Swedish krona weakened against most major currencies during the year, with the biggest change being a 10% increase in the US dollar’s value against the krona. A weaker krona results in positive currency returns because the Fund’s foreign exchange investments gain in value when measured in Swedish kronor.

Outcome 2021

Currency 21.1 percent of the portfolio
Return +2.0%