TOKYO (Reuters) - Japan’s Asahi Mutual Life Insurance Co plans to raise its holdings of foreign bonds and step up investment in alternative assets in the current business year to March, a senior company executive said on Monday, as domestic yields remain low.
The company also plans to reduce currency hedging on its foreign bond holdings as it expects the dollar to stabilize, Masaru Tsuruoka, head of the asset allocation and planning department at Asahi Life, told Reuters in an interview.
“While yen-denominated debt will remain at the core of our portfolio, we will further diversify into dollar-denominated debt and alternative assets, given the current low bond yields in Japan,” Tsuruoka told Reuters in an interview.
In the last financial year ended in March, Japanese insurers bought a record 7.76 trillion yen ($70.5 billion) of foreign bonds.
Asahi plans to buy more dollar-denominated debt in the current financial year, Tsuruoka said.
To enhance yields, Asahi Life is eyeing dollar bonds issued by non-U.S. names, such as Canadian, Dutch and Japanese issuers, which tend to have higher yields than U.S. Treasuries or dollar bonds issued by U.S. corporates.
Foreign issuers typically pay higher yields than domestic issuers because they tend to be less known among local investors.
“We are looking to buy bonds yielding around 2.5 percent as we are aiming to get return of about 100 basis points after currency hedging, which costs about 150 basis points now,” said Tsuruoka.
“We are mostly buying bonds with five- to ten-years to maturity, taking credit risks, rather than increasing duration risks.”
Asahi Life slightly shortened the average duration of its dollar bond portfolio to 6.5 years at the end of December, from 7.2 years at the end of 2015, Tsuruoka said.
The company also plans to reduce currency hedging on foreign
bonds by around five percentage point to 82-3 percent of its total foreign bond holdings the this financial year, he said.
Japanese insurers, including Asahi, are averse to exposure to foreign exchange fluctuations, so they use currency hedging on a large part of their foreign bond investment.
Tsuruoka said that the company plans to increase the holdings of alternative assets, including infrastructure funds, credit product funds, private equity and listed REITs, adding that the insurer is investing in “middle-risk, middle-return” assets.
Asahi Life, which had total assets of about 5.6 trillion yen ($50.9 billion), reduced domestic bond holdings by 110 billion yen in the year ended in March and plans to lower it further, Tsuruoka said.
But he added the company could buy longer-dated bonds given their yields have risen after the Bank of Japan started a new policy framework last September, allowing long-term bond yields to rise considerably since then.
Reporting By Tomo Uetake; Editing by Chang-Ran Kim and Sam Holmes