“And You Thought The Bernanke Put Was Dead”: World’s Biggest Pension Fund Posts Largest Quarterly Return In History

Earlier this morning, Bloomberg’s Richard Breslow said the following:

The next time you wonder just what P/Es are justified, ask yourself when the last time was you saw one of the gigantic sovereign wealth funds say they were putting less money into equities. That’s the great reserve rotation which makes their position releases far more important than any Form 13F report. And most economic numbers. And you thought the Bernanke put was dead.

The reference there is pretty clearly to Norway’s nearly $1 trillion Government Pension Fund, which returned $53 billion, or roughly 7% in 2016. Can you guess what drove performance? Here’s Chief Executive Officer Yngve Slyngstad:

All of the fund’s asset classes generated positive returns, but it was the strong equity return in the second half of the year that drove the fund’s results.

Well on Friday we learned that world’s largest pension fund put up its biggest gain in history last quarter. Here’s Bloomberg:

The Government Pension Investment Fund returned 8 percent, or 10.5 trillion yen ($92 billion), in the three months ended Dec. 31, increasing assets to 144.8 trillion yen.

Can you guess where the gains came from? Again, to Bloomberg:

Domestic equities added 4.6 trillion yen after the benchmark Topix index recorded its best quarterly performance since 2013, outweighing a loss on Japanese bond holdings. Foreign stocks and debt jumped as the yen fell the most against the dollar in more than two decades.

Japanese shares returned 15 percent over the three months, matching a 15 percent gain in the Topix. Overseas stocks added 16 percent, largely due to a 13 percent drop in the yen against the greenback, the biggest such decline since 1995, which increases the value of foreign holdings when repatriated.

Obviously, the “Trump effect” was at work here, but do you know what else helps out a whole helluva lot when you’re massively long Japanese equities and when you need a weaker currency to boost your overseas holdings? A central bank that buys massive amounts of equities (and steps in on dips) and massive amounts of bonds in an effort to drive the currency lower, that’s what.

So yes, the Bernanke put lives. Both metaphorically through SWFs and (almost) literally through Kuroda.

I’ll leave you with the following from Deutsche Bank.

Via Deutsche Bank

While the BoJ’s ETF purchasing had no significant effect on a monthly basis, there may be an effect on a daily basis. Thus, we used a multiple regression model to analyze short-term effects from the BoJ’s ETF purchasing on equity prices. Returns in Nikkei 225 afternoon session (%) = a + b × returns on Nikkei 225 morning session (%) + c × change in USD/JPY between end of morning session and end of afternoon session (%) + d × BoJ’s ETF purchasing (¥10bn). Our dependent variable is the returns in the afternoon session rather than the whole day returns of Nikkei 225. This is because we assume that the BoJ purchases ETFs in the afternoon if prices in the morning decline by a certain degree and, therefore, that the whole day returns would not accurately reflect the impact. The results are shown in Figure 7. The coefficient for the BoJ’s ETF purchasing volume is a statistically significant positive value. This stands in contrast with the monthly return results. These results suggest that the BoJ’s present purchasing volume of around ¥70bn per time will lift the Nikkei 225 in the afternoon session by 0.16% (=0.023×7), i.e., for a Nikkei 225 of ¥19,000, a boost of ¥30.