Index funds do not provide higher returns in PPM - Sifa says

Jonathan Boyd
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Index funds do not provide higher returns in PPM - Sifa says

Index funds do not provide better returns than actively managed funds, according to returns analysis performed by the Swedish Investment Fund Association (Fondbolagens förening) in respect of funds available in Sweden's Premium Pension system.

The results of the analysis have been published amid Swedish government proposals that would favour index funds, without any visible benefits for those saving for retirement, the Association says. Ongoing changes to the Premium Pension and the PPM platform for distributing funds have been covered ongoing by InvestmentEurope, for example: https://www.investmenteurope.net/news/4008886/default-ppm-fund-ap7-records-strong-2019-industry-continues-response-proposed-ppm-changes , https://www.investmenteurope.net/news/4005700/-swedes-self-selection-ppm-sifa , https://www.investmenteurope.net/news/4002399/funds-removed-sweden-ppm-platform. The proposed changes would restrict self-selection of funds, instead lifting forward the role of the current default fund in PPM - AP7 - and rely on a system of guided choice, which the Association says would steer long term savers towards index funds that are capable of sharp changes in flows.

"Capacity criteria will be placed before quality criteria," the Assocation says.

Fredrik Nordström, CEO, adds: "In the Premium Pension system savers can select actively managed funds to a very advantageous price. Our review of returns in different fund categories shows that index funds have not given savers a higher return in the Premium Pension. There is therefore no reason to, as the inquiry suggests, specifically reconstruct the system to lift forward index funds. Savers do not get better returns, the system is unnecessarily made more complicated with a new step, and pension money is concentrated to a few players."

The association's report is available in Swedfish here: https://mb.cision.com/Public/16395/3006293/951186c9f84729e5.pdf

It shows that about 55% of invested capital overseen by the Swedish Pensions Agency in its capacity as the authority responsible for PPM is in funds that savers have self-selected. As of data to the end of September 2019, the 25 selectable funds with the largest assets account for half of assets in all selectable funds.

For those seeking out index funds, the data also suggests that these tend to be clustered within certain categories of funds as a percentage of all funds available and classified by Morningstar for the Swedish fund market, including PPM, as illustrated below for equity and balanced funds.

(Source: Swedish Investment Fund Association)

 

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.