(Bloomberg) -- The world's largest pension fund posted a record seventh straight quarter of gains in the three months ended December, as stocks outside Japan helped the fund boost returns.
Japan's Government Pension Investment Fund gained 2.8% in the quarter, with assets climbing to a record 199.3 trillion yen ($1.73 trillion), the fund said in Tokyo.
The GPIF has achieved successive quarterly gains since it rebounded from a record 17.7 trillion yen loss triggered by the equity rout during the emergence of Covid two years ago. It's the longest streak of positive returns on record, according to data from the fund dating back to fiscal 2008.
Equities outside Japan returned 10.5%, while domestic stocks lost 1.6% amid market disappointment with Prime Minister Fumio Kishida as well as worries over the Federal Reserve's potential tightening. Overseas debt added 2.5% and Japanese bonds lost 0.02%.
“Moves to reduce the weighting of Japanese debt in favor of equities as well as diversifying their investments globally are now paying off,” said Shingo Ide, the chief equity strategist at NLI Research Institute, cautioning that stock prices are likely to fall temporarily as the Fed tightens.
The MSCI All-Country World Index of global stocks gained 6.4% in the period, with stocks in the U.S. hitting records, while the Topix index fell 1.9% during the period, falling off three-decade highs. The dollar gained 3.4% against the yen.
“In the third quarter, foreign stock markets, especially the U.S., rose on expectations of economic recovery, while domestic stock markets declined slightly,” Masataka Miyazono, the fund's president, said in a statement. “The yen weakened against the U.S. dollar and slightly against the euro, while interest rates in Japan and overseas remained generally unchanged.”
Miyazono has yet to oversee a negative quarter since he took the top post in April 2020. As things stand though, the fund will struggle to make it eight quarters of gains, with both domestic and global equity benchmarks down for the year in 2022 as the Fed approaches a decision to raise interest rates.
Another factor that may continue to weigh on future returns is the decision last year not to invest in yuan-denominated Chinese sovereign debt. Miyazono said last month the fund could consider investing in Chinese government bonds if the market situation improves. The GPIF typically reports full-year results in July.
| Asset | Oct.-Dec. performance | End-Dec. asset allocation | Target asset allocation |
|---|---|---|---|
| Domestic bonds | -0.02% | 24.95% | 25% (± 7ppts) |
| Domestic equities | -1.6% | 24.92% | 25% (± 8ppts) |
| Foreign bonds | +2.5% | 24.46% | 25% (± 6ppts) |
| Foreign equities | +10.5% | 25.68% | 25% (± 7ppts) |
©2022 Bloomberg L.P.
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