Great start for the equities in Q1 2021 - market rate return up to 6.3 per cent

In the 1st quarter of 2021, PFA generated an investment return in the market rate environment of DKK 10 billion with a return for customers of up to 6.3 per cent. The most successful were high-risk profiles, which were supported by solid progress in the equity markets, while the more bond-heavy, low-risk profiles were affected by rises in interest rates.

The prospect of reopening after the COVID-19 lockdowns and renewed growth around the world has generated new optimism, particularly in the world’s equity markets. This was also evident in the first three months of the year, when PFA generated a return of DKK 10 billion for market rate customers, which is, in particular, attributable to PFA’s large equity portfolio, which yielded a total return of 5.9 per cent.

“The past year was extreme in every way. However, even though the COVID-19 pandemic is still raging, the ongoing vaccine rollout has created hope that we can soon reopen society and return to normal everyday life. That optimism also drove the equity markets significantly in the first three months of the year and has particularly rewarded some of the companies that were otherwise impacted by the lockdown. This made a positive contribution to the return in market rate, which totals DKK 10 billion,” says Kasper A. Lorenzen, PFA’s Group CIO.

The total return in the market rate environment after the 1st quarter is 3.0 per cent. The positive development in the equity markets has particularly rewarded customers in high-risk profiles, as they have benefited most from this progress, while also being less affected by the price declines that occurred in the bond markets as a result of rises in interest rates. This means that PFA’s market rate customers have received returns of up to 6.3 per cent, depending on their chosen investment profile, while the more bond-heavy low-risk profiles have performed less well.

The Q1 return in PFA’s average interest rate environment was -4.5 per cent. The negative return in the average interest rate environment is mainly due to the fact that the value of the interest-rate hedging fell. As this development is offset by a smaller need for provisions on the liabilities side, the impact on PFA’s collective reserves is limited, and the development will therefore not affect the prospective return for PFA’s average interest rate customers.

PFA’s total Q1 return on group level ends at DKK 0.5 billion.

Broad portfolio to provide a good cushion against risk

According to PFA’s Group CIO, it was the increases in interest rates that created a new risk dynamic, which will help to dictate future developments in the financial markets.

“Developments in the 1st quarter show how different asset classes can go their separate ways right now. In the wake of the rising growth, we have seen that interest rates have risen, and that, for the first time in many years, there is a risk of inflation, partly reflected in rising commodity prices. As long as this development is gradual and occurs as a result of expectations for strong growth, the risk is limited. For the same reason, the central banks have also announced that they can accept higher inflation for shorter periods. In the longer term, however, it is a factor to focus on, and it provides a new risk dynamic compared to the past year, when COVID-19 lockdowns and vaccine development set the agenda,” says Kasper A. Lorenzen.

He adds that the development has already put pressure on the bond return, and that, from this point of view, PFA is satisfied with having spread its low-risk investments across many different assets.

“Over a number of years, we have built up a broad portfolio of properties and alternative investments, which provides resilience in times of pressure on bond yields. In addition, we have adjusted our investment processes over the past year to make it easier to accelerate and take risks when there is a prospect of favourable conditions in the markets. This provides a good foundation going forward, when we will have to navigate the intersection between positive growth expectations, increases in interest rates and concerns about inflation,” says Kasper A. Lorenzen, who is generally optimistic about the return opportunities for the whole year.

Climate considerations high on the agenda

Just like PFA Plus, the return in PFA Climate Plus also had a good start of 2021. Hence the success of the extra sustainable and climate-friendly investment choice seems to continue, while governments around the world are announcing new ambitious climate goals and plans. The most recent example is US President Joe Biden’s new plan to invest USD 2,000 billion in climate and infrastructure.

This is an area that will also be high on PFA’s agenda in 2021. For example, we have started by anchoring the new pan-European guidelines for sustainable financing. What is more, PFA has intensified its work on setting sub-goals and follow-ups on the climate partnerships and goals which the company has committed to.

“In 2020, together with a number of other major institutional investors, we joined the UN-supported Initiative, Net Zero Asset Owner Alliance, where the goal is for our investments to be climate-neutral by 2050. This requires specific sub-goals along the way. While we have been working systematically for some time on the climate footprint of our equity investments, we are now in the process of spreading our efforts to the rest of our investment portfolio. In this context, it is also absolutely crucial for us to have a dialogue about the assets we invest in, and if necessary get rid of those that do not support our long-term climate ambitions,” says Kasper A. Lorenzen.

PFA’s goal is for the new pension product Climate Plus to be CO2-neutral well before 2025. In addition, before the summer break, we will set a binding 5-year CO2-reduction target for all PFA’s listed shares, corporate bonds and property investments. This is all in line with the Paris Agreement and the path towards CO2 neutrality.

Investment return per asset group in Q1 2021
AssetQ1 2021
Listed shares5.9 %
Alternative investments1.6 %
Property0.2 %
Bonds-1.9 %
Returns in PFA Plus, Q1 2021
Years to retirement30155(5)

Profile D - high risk

5.7 %5.7 %2.3 %1.7 %

Profile C - moderate risk

4.0 %4.0 %1.5 %1.0 %

Profile B - low risk

2.3 %2.3 %0.7 %0.3 %

Profile A - very low risk

0.6 %0.6 %0.0 %-0.4 % 

The return includes 5 % in Individual CustomerCapital and an interest on Individual CustomerCapital of 8 % per year.

Returns in PFA Climate Plus, Q1 2021
Years to retirement30155(5)

Profile D - high risk

6.3 %6.3 %2.7 %2.1 %

Profile C - moderate risk

4.5 %4.5 %2.0 %1.4 %

Profile B - low risk

2.8 %2.8 %1.1 %0.7 %

Profile A - very low risk

1.0 %1.0 %0.3 %0.0 % 

The return includes 5 % in Individual CustomerCapital and an interest on Individual CustomerCapital of 8 % per year.

Returns in PFA Invest, Q1 2021
PFA Invest Balance AA0.0 %
PFA Invest Balance A1.5 %
PFA Invest Balance B4.5 %
PFA Invest Balance C6.1 %
PFA Invest Balance AKK2.8 %

Further information

Rune Lindberg, senior press consultant,, (+45) 40 32 29 01