TOKYO, July 4 Japan's giant public pension fund enjoyed another strong financial year as domestic stocks rose, but its performance was marred by a pullback in the January-March quarter - just as the fund was cautiously beginning to seek better returns on its equity investments.
The $1.24 trillion Government Pension Investment Fund, the world's largest, generated an 8.6 percent return in the year through March, its third-best ever, helped by a weaker yen and a 47 percent jump in Japanese equities, the fund reported on Friday.
GPIF posted a loss of 0.8 percent, however, in the final three months, its first loss in seven quarters, as the Nikkei stock average slipped 9 percent.
Prime Minister Shinzo Abe's government has pressed the enormous fund to seek higher returns for Japan's rapidly ageing population by pumping more money into stocks and other risky assets, and away from the paltry returns of Japanese government bonds. The 10-year Japanese government bond currently yields less than 0.6 percent.
In the final three months of the financial year GPIF began putting money into a new stock index that focuses on return on equity and on companies considered to have strong governance. GPIF's allocation to the JPX 400 index was 150 billion yen ($1.47 billion) at the end of March.
Global fund managers and other investors closely watch GPIF, which manages reserves for the national pension system. With a portfolio bigger than the Mexican economy, it is seen as a bellwether for other Japanese institutional investors.
The fund's asset value was 126.58 trillion yen at the end of March, down 0.2 percent from December's record high but up 5 percent for the fiscal year. All four of its asset classes posted gains for the year, led by a 32 percent return for foreign equities.
The fund had 53.43 percent of its assets in domestic bonds at the end of March, 15.88 percent in Japanese equities, 10.66 percent in foreign bonds, 15.03 percent in foreign equities and 5 percent in short-term assets.
Founded in 2001, GPIF conducted the most significant shake-up to its investment strategy in June last year when it revised its allocation targets, setting a core weighting of 12 percent for Japanese stocks, with a fluctuation of 6 percentage points allowed either way.
The core weighting for domestic bonds is 60 percent, foreign stocks 12 percent and foreign bonds 11 percent. GPIF has 5 percent invested in short-term assets.
GPIF's use of active investment in domestic equities fell to 2.57 trillion yen from 3.72 trillion yen in the previous year.
The fund sold a net 4.08 trillion yen during the 12 months, its fourth straight year as a seller, as it raised cash to cover pension payouts. ($1 = 102.1100 Japanese Yen) (Editing by William Mallard and Eric Meijer)