Japan's Government Pension Investment Fund reported a 2.7% return for its fiscal second quarter through Sept. 30, lifting the Tokyo-based behemoth’s portfolio assets to ¥123.9 trillion ($1.2 trillion).
The GPIF's 16.3% allocation to domestic stocks, up incrementally from 15.7% as of June 30, contributed ¥1.2 trillion of the fund's ¥3.2 trillion gain for the quarter.
The next biggest contribution, of ¥1.1 trillion, came from the fund's 13.5% allocation to international stocks, up from 12.9% at the close of the prior quarter.
The GPIF's latest quarterly results come two weeks after a final report from a panel of experts advising the government warned the fund's long-standing, conservative focus on Japanese government bonds would no longer be appropriate in light of the economic policies of Prime Minister Shinzo Abe's government. Mr. Abe is attempting to stem years of deflation by devaluing the yen and setting an inflation target of 2%.
The report suggested the GPIF and other public funds seek a higher risk-reward tradeoff, and consider allocations to alternatives, including real estate private equity and commodities.
For the latest quarter, the GPIF's allocation to domestic bonds slipped to 58% from just below 60%, even as the fund's cash holdings edged up to 2.1% from 1.5% at the close of the prior quarter. Although GPIF set in June a 60% target allocation for domestic bonds, it has the leeway to range as much as eight percentage points on either side.
However, the fund has less room to add further to its holdings of domestic stocks.
In June, the target for domestic stocks was set at 12%, with leeway to range within six percentage points on either side. An increase would require a rebalancing should the GPIF's domestic equity allocation rise by another two percentage points from its Sept. 30 level.
For its fiscal first half through Sept. 30, the GPIF enjoyed a 4.58% gain, below the pace of its 10.23% return for the 12 months ended March 31.