Japanese equities save the day for GPIF as fund shifts to bonds in Q2

Recording the worst quarterly investment return since April last year, the world’s largest pension fund was a net seller of equities in the second quarter.
Japanese equities save the day for GPIF as fund shifts to bonds in Q2

Japan’s Government Pension Investment Fund (GPIF) recorded an investment return of just 0.98%  in the second quarter ended September - the worst since last April - in quarterly results that would have been even worse if not for the comeback of Japanese equities.

With 25% of its assets, or 49.8 trillion yen, tied up in domestic stock market, Japanese equities were GPIF’s best performers in the second quarter, contributing 5.35% of its gains, according to its quarterly report released on Nov 5.

In the July to September period, Japan’s TOPIX surged nearly 5%, while Nikkei225 gained 2.5%.

“In the second quarter, the foreign stock market fell slightly amid awareness of accommodative monetary policy shifts in major countries. On the other hand, the domestic stock market rose sharply due to the normalization of economic activities through coronavirus vaccination and expectations for future economic policies. Although the yen weakened slightly against the dollar, the yen strengthened against the euro,” noted GPIF President Masataka Miyazono.

During the period, GPIF allocated more assets to domestic bonds and foreign bonds and cut positions in both Japanese and foreign equities.


It sold a net 0.1 trillion yen in Japanese equity, and 1 trillion yen in foreign equity. Instead, the pension giant bought 1 trillion yen in Japanese bonds and 0.7 trillion yen in foreign bonds, thus shifting from equities to bonds, Nomura data showed.

This has left GPIF with room to allocate money to foreign currency-denominated assets as of the end of September, Nomura noted in a November 8 report.

“Globally, we think interest will expand from US and European equities and Asian emerging market equities to Japanese equities. Real estate stocks and REITs, as well as stocks in sectors dependent on foreign demand, would also likely outperform if it looks like the Japanese yen will weaken in terms of the effective exchange rate as the Fed's rate hikes near,” the report noted.

As of the end of September, GPIF’s assets under management were 194.1 trillion yen ($1.72 trillion).

It divides its portfolio into four equal parts - both foreign and domestic bonds and equities - with less than 8% of deviation allowed. By end-September, it had 26.8% in Japanese bonds, 24.2% in foreign bonds, 25% in domestic equities, and 24% in overseas ones.

Source: GPIF

Despite more assets in domestic bonds, they only contributed 0.11% of return in the second quarter, less than the 0.47% in the previous quarter.


Losses were recorded in both foreign bonds and equities, which slipped 0.85% and 0.77% respectively. All performances beat benchmarks by less than 0.1%.

“We will operate from a long-term perspective, comply with investment principles and codes of conduct, and fulfil our fiduciary duty firmly in order to leave the reserve fund necessary for pension finance,” Miyazono said in his comments on the second-quarter results.

As global markets fluctuated amid uncertainties of inflation and energy crunch, GPIF is not the only pension fund that recorded narrowed returns compared with previous quarters.

From July to September, Norges Bank Investment Management (NBIM) returned only 0.1%, with losses in equities and infrastructure investments.

Similarly, Australia’s Future Fund gained 0.8%, while California Public Employees' Retirement System (CalPERS) returned 1.9%, according to data provided by Global SWF.

In the same period, S&P 500 Bond Index remained flat to increase just 0.8 points, while S&P Global 1200 equity index dropped 47 points, or 1.4%.

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