The world's biggest pension fund posted its second straight quarterly gain as overseas stocks and bonds generated returns even as most major currencies depreciated against the yen.
Japan's Government Pension Investment Fund returned 0.2%, or ¥257 billion ($2.4 billion), in the three months ended June 30, with assets totaling ¥159.2 trillion, it said Friday in Tokyo. Overseas stocks were the fund's best performing investment, returning 1.3%, followed by overseas debt and domestic bonds. Its Japanese stocks lost 2.3%. The allocation to foreign debt and equities reached record highs in percentage terms, according to the GPIF.
Despite weakness in the dollar and euro, assets abroad helped the GPIF extend its recovery from a record loss of ¥14.8 trillion in the final quarter of 2018. The fund revealed in its annual report last month it was buying overseas bonds with hedges against possible yen fluctuations for the first time.
"The usefulness of hedged overseas bonds looks timely since the yen has appreciated," said Takahiro Sekido, a strategist at MUFG Bank and former Bank of Japan official. The GPIF may increase its investment in overseas bonds tracking an index with currency hedges, he said.
Global equities and bonds rallied last quarter as U.S. and European central banks turned dovish amid concerns over global trade tensions. Japanese stocks lagged amid concerns about domestic corporate earnings and a possible sales tax hike in October.
During the April-June period, the MSCI All-Country World index of global stocks rose 2.9% and the S&P 500 index gained 3.8%, while the Topix index dropped 2.5%. Yields on 10-year U.S. Treasuries fell 40 basis points, while yields on benchmark Japanese government bonds dropped 7 basis points.
Japan's currency strengthened 2.8% against the dollar and 1.4% vs. the euro in that quarter, decreasing the value of foreign holdings.
The GPIF has a general target to keep 25% of its basic portfolio in domestic stocks and 25% in overseas shares. The permissible range of deviation is 9% for local equities and 8% for stocks abroad. Alternative assets accounted for 0.35% of holdings, below the allowable limit of 5%.
"Their investment is going well so far, especially with U.S. stocks rebounding considerably," MUFG Bank's Mr. Sekido said. "Going forward, the GPIF may prefer overseas stocks and bonds" within its basic asset allocation targets as Japanese yields are too low.