LHV Pensionifond Aktiivne III

Active Management

10%

-10%

10%

10 year net yield

10%

-10%

10%

5 year net yield

10%

-10%

10%

3 year net yield

10%

-10%

10%

2 year net yield

Suitable if

you have medium risk tolerance,
you are aware of investment risks and wish to make long-term investments in a supplementary funded pension, with the aim of using the accumulated money tax-effectively after reaching retirement age.

Choose this fund

Details for making a payment in the fund

Strategy
The Fund prefers to invest its assets in foreign markets, in more liquid instruments and in instruments traded on regulated markets. The Fund’s assets may be invested in shares, equity funds and other equity-like instruments. In addition to the above, the Fund’s assets may also be invested in bonds, money market instruments, deposits, units or shares in other investment funds, real estate, derivative instruments, securities whose underlying asset is a precious metal or a commodity or whose price depends on a precious metal or a commodity, and other assets. The Fund can also be used to borrow and lend. The Management Company may borrow up to 25% of the value of the Fund’s assets on the Fund’s account, which also allows for investing more than 100% of the value of the Fund’s assets, up to 125% of the value of the Fund’s assets, in equity risk instruments.

Net asset value

...

Biggest investments

The data is presented as at 31.10.2024

Biggest investments
German Treasury Bill 11/12/2024	6.37%
ZKB Gold ETF	4.53%
Eesti Energia perpetual NC5.25	3.94%
France Treasury Bill 25/11/2024	3.57%
AMUNDI EURO STOXX BANKS UCITS ETF	3.38%
German Treasury Bill 19/02/2025	3.16%
German Treasury Bill 19/03/2025	3.16%
EfTEN Real Estate Fund	2.84%
Fortum	2.73%
BNP Paribas 2.5% 31/03/2032	2.52%

Biggest investments in Estonia

Biggest investments in Estonia
Eesti Energia perpetual NC5.25	3.94%
East Capital Baltic Property Fund III	2.02%
BIGBANK 7.5% 16/05/2032	1.98%

Asset Classes

The data is presented as at 31.10.2024.

Information about the fund

Information about the fund
Volume of the fund (as of 31.10.2024)	31,318,274 €
Management company	LHV Varahaldus
Depository	AS SEB Pank

Entry fee: 0%

Exit fee: 0%

Rate of the depository’s charge: 0.0439%

Management fee: 0.89%

Ongoing charges (inc management fee): 1.19%

Ongoing charges are based on expenses for the last calendar year, ie 2023. Ongoing charges may vary from year to year.

Terms and Conditions

Terms and conditions (in Estonian)

Prospects

Reports

October 2024: Gold drives positive returns in the stock portfolio

Kristo Oidermaa and Romet Enok, Fund Managers

The US S&P 500 index ended October with a return of −1% in dollar terms, while the European Euro Stoxx 50 index posted −3.3% in euro terms. The emerging markets index declined by 4.4% in dollar terms over the month, driven primarily by China, where the index fell by 6% in dollars. The wave of optimism that emerged in China in September has somewhat diminished. Meanwhile, the OMX Baltic Benchmark index rose by 3.5% over the month.

In October, we added the Finnish energy company Fortum to our funds, reduced our gold holdings and sold off the Finnish retail company Kesko from L and Active III. The top performers in the stock portfolio were our gold-related positions, which gained between 4.5% and 7.5%, and our European banking index fund, which increased by 3.5% in October.
On the downside, our investments in energy metals dropped by 7% to 9% and our Chinese position in Alibaba declined by around 12%. We continue to see good opportunities in the commodity sector, given the protection it provides in a challenging geopolitical environment, as well as in Scandinavian companies due to their high quality and strong competitiveness. We have also increased our exposure to US stocks in recent months and intend to increase this exposure in the future.

October was a particularly active month for the EfTEN Real Estate Fund, which acquired a logistics centre and signed a contract to purchase a production and storage facility. The logistics centre in Tallinn has ELP Logistics OÜ as the anchor tenant, with a lease commitment extending for at least ten years. The production and storage facility under development in Harku municipality is being built for ICONFIT, the Baltic region’s leading producer of sports, diet and health foods. ICONFIT has also signed a long-term lease agreement with the fund, with a term of ten years.

The most significant change in the bond portfolio was the liquidation of our position in Volkswagen securities. This instrument, slightly more complex than standard bonds, had been in our fund for nearly a year and a half and provided returns more in line with the long-term average of stock markets. For new investments, we are currently looking outside the global exchanges and our next addition is likely to be a direct investment.

September 2024: The largest indices ended the month positively

Kristo Oidermaa and Romet Enok, Fund Managers

The beginning of September was quite volatile, just as the beginning of August was; nonetheless, the major indices ended the month positively. The US S&P 500 index was up 2% in dollars and the European Euro Stoxx 50 rose 0.9% in euros. The emerging markets index was up as much as 6.4% in dollars during September. This was mainly due to China, whose index gained 23.5% in dollars as the market responded to the country’s long-awaited major government spending aimed at stimulating the economy. The Baltic OMX Baltic Benchmark index saw little change, ending the month down 0.8%.

In September, we sold five investments from the stock portfolio: Siemens Healthineers, Roche Holding, GN Store Nord, Huhtamäki and Valmet. We also halved our position in Agnico Eagle Mines; however, we increased our energy position by buying more in Noble Corp and Valaris.

During the month, our energy metal positions, physical gold and Alibaba delivered the best results, reflecting more positive sentiments in the market due to the announcement that the Chinese government would increase its support to its economy. Investments in the energy sector and gold mining enterprise Barrick Gold Corp. were the biggest drags on the fund’s results in September.

We still see good opportunities in the commodity sector thanks to the protection the sector offers to the investor in a difficult geopolitical environment, as well as in Nordic companies thanks to their guaranteed quality and competitiveness. September was a successful month for the fund’s bond portfolio thanks to our large investment in Eesti Energia securities. In addition to the annual interest rate of 7.875%, the price of the bonds has gone up by approximately 5% since our purchase this July.

We will continue to make bond investments only if their risk and return prospects are comparable to or better than equity investments.

August 2024: August brought good buying opportunities

Kristo Oidermaa and Romet Enok, Fund Managers

August was quite volatile for the markets. After falling earlier in the month, the S&P 500 index recovered to end the month up 2.3% in dollars. The European Euro Stoxx 50 ended August up 1.8% in euros. The emerging market index rose 1.4% in dollars during the month, with China, the biggest contributor to that rise, up 1%. The OMX Baltic Benchmark index fell by approximately 2.7% in euros during the month.

The market correction at the beginning of the month brought us good buying opportunities. Among the new investments added to the portfolio were the Swedish companies Atlas Copco, Saab, Indutrade and Nibe Industrier. We also bought positions in United Rentals, an American construction equipment rental company, and in American Industrial Renaissance ETF. In addition, we increased our holdings in the Finnish company Metso and in VanEck Oil Services ETF.

The biggest contributors to the fund’s equity portfolio last month were gold positions, which rose 4%–8%, the European banks index, which rose 3.4%, and the air source heat pump manufacturer Nibe Industrier, which rose about 19%. The poorest performers were investments related to energy and silver, which fell by 15%–20% and 11%, respectively. Due to structural undersupply and the protection it offers in an uncertain geopolitical environment, we continue to see good opportunities in the commodity sector.

In August, LHV pension funds sold a stake in the forest fund Birdeye Timber Fund 1 for 8.4 million euros. The duration of the investment was ten years, during which period we contributed to the development of Estonian forests and the management of the forest portfolio. Forest land as an asset class is based on real property and is less volatile than traditional investments such as stocks and bonds.

Our major investment this summer – Eesti Energia subordinated bonds – has started with strong results, bringing the fund a return of approximately 3% by the end of August. A significant part of the return was due to the overall decline in interest rates in Europe (reminder: after interest rates are lowered, the prices of most bonds rise automatically). If the company’s results improve, the price of the bonds could increase further. To top it off, the fund accumulates interest at the rate of 7.875% per year in the meantime.

July 2024: We made a new major investment

Kristo Oidermaa and Romet Enok, Fund Managers

July was a rather volatile month on the stock markets. While the S&P 500 index, which largely represents technology stocks, dipped during the month and ended with a 1.1% return in dollar terms, the Dow Jones index, which reflects more established industrial-sector companies, performed much better, with a monthly return of 4.4%.

The Euro Stoxx 50 index saw little change in July, with its value decreasing by 0.3% in euro terms. The emerging markets index also remained largely unchanged. The index was negatively impacted by China, which declined by 2.2% in dollar terms, but positively influenced by India and Indonesia, which rose by 3.9% and 3.5%, respectively. The OMX Baltic Benchmark index increased by approximately 1% in euro terms over the month.

The bond portfolio has a new major investment as we subscribed to Eesti Energia’s new bonds. These bonds offer an annual interest rate of 7.875%, and Eesti Energia is expected to repay the loan in approximately five years. In addition to bank loans, the energy provider raised funds through bonds to complete its extensive investment plan. Capital-intensive construction projects are underway in the renewable energy, network services and fuel business sectors. The bond is traded on the international market, providing an additional opportunity to profit from potential price increases.

On the other hand, funds were released from the bond portfolio when the local real estate fund Baltic Horizon made the final repayment on the shorter-term portion of its bond. In addition to the nearly 12% annual interest rate, early redemption fees were added to the shorter-term repayments.

Is maximum risk the optimal strategy?
Andres Viisemann, Head of LHV Pension Funds

October was a relatively calm month in the securities markets. On 17 October, the European Central Bank lowered its short-term interest rates by 0.25 percentage points. Since the decision was widely anticipated and already priced into stock markets, it elicited little reaction from participants.

However, it is worth noting that in October, the yield on Germany’s ten-year risk-free government bonds actually rose by 0.2 percentage points instead of falling. A similar reaction occurred a month earlier in the US, when following the Federal Reserve’s decision to lower short-term interest rates by 0.5 percentage points, the yields on ten-year government bonds immediately increased by nearly 0.5 percentage points.

This suggests that markets are far from convinced that central banks have fully brought inflation under control. The problem is that although interest rates in both Europe and the United States are relatively high compared with recent inflation figures, and central banks’ monetary policies may appear rather stringent, government fiscal policy – particularly in the US – seems inexplicably lax, especially given the relatively strong economic environment.

The last decade’s stock market rally may not continue forever

US stock markets, which have been in an upward trend for some time, remained relatively calm in October. The S&P 500 index, which tracks large US companies, gave back 1% of its earlier gains during the month, while EuroStoxx 50, which covers major European companies, lost 3.3% of its value.

An analysis of stock indices and bond markets in October revealed that markets were already pricing in higher chances of Donald Trump being re-elected compared to his opponent. Although both candidates were expected to maintain spending levels significantly exceeding revenues, which would fuel the economic environment, businesses and markets anticipated that a Trump administration would reduce restrictions that are currently hindering economic growth.

That said, Trump cannot be considered a proponent of Reagan-style free-market economics – he proudly declares tariffs to be his favourite policy tool. The anticipated tariffs are the main source of concern for the stock markets of the US’s largest trading partners.

In October, a Goldman Sachs analysis caught my attention, predicting that the S&P 500’s returns over the next decade will be significantly lower than those seen over the past ten years. Over the previous decade, the index of the largest US companies grew by 233% (including dividends), amounting to an average annual return of 13%. By contrast, Goldman Sachs analysts expect the index to grow just 34% over the next ten years, yielding an annualised return of only 3%.

Pilt
Figure 1. S&P 500 ten-year annualised return forecasts for 2012, 2020 and 2024. Source: Goldman Sachs.

Goldman Sachs analysts also do not rule out the possibility that the S&P 500 could be lower in ten years than it is today, projecting an annualised return ranging from −1% to +7%. This means that US stock markets could underperform the US bond market, where a ten-year bond currently offers a fixed yield of 4.3%.

A Goldman Sachs equity strategist told Bloomberg in an interview that while the US economy is currently strong and the Federal Reserve is lowering interest rates, they expect the index to deliver a 9% total return next year. Beyond that, however, they are less optimistic due to historically high stock valuations.

When investing, consider different scenarios

Nobel laureate in physics Niels Bohr once remarked, “Prediction is very difficult, especially when it’s about the future.” The Goldman Sachs analysis discussed earlier is less a warning of a bleak future that may await stock markets and more a example of how to approach risk effectively. Instead of focusing on a single figure, it is more informative to consider a range of possible outcomes.

For example, investing in a ten-year US government bond today provides near certainty that the return over the next decade will be 4.3%. By contrast, investing in US stocks could result in anything from a small loss to a return exceeding that of bonds. US government bonds are essentially risk-free, guaranteeing a fixed yield, whereas stock, which are significantly riskier, present the possibility of both gains and losses.

Renowned American investor Howard Marks described in his October memo how he approaches the relationship between risk and return. For decades, investment textbooks have presented this relationship as a linear line, illustrating how taking on greater risk yields higher returns.

Pilt
Figure 2. The relationship between risk and return

However, Marks argues that this explanation is inadequate because it overlooks the growing spectrum of possible outcomes as risk increases – a good result could be far better than forecasted, and a poor result much worse. Marks not only critiques the traditional view but also proposes a solution, suggesting a more accurate graphical representation of the relationship between risk and return.

Pilt
Figure 3. The relationship between risk and return, as proposed by Howard Marks

We help grow pension assets by seeking to avoid major losses

When we launched LHV pension funds more than 20 years ago, we set three priorities for ourselves:

Protect the assets accumulated in LHV pension funds from losses
Preserve the purchasing power of the assets in LHV pension funds
Achieve returns that outperform competitors.

In doing so, we have always adhered to the principle that high long-term returns can only be achieved by avoiding significant losses.

Pension assets are a reserve intended for the period of life when working age has ended and regular income from employment is no longer available. A reserve, by definition, should remain intact until it is needed. This means there is a limit to how much risk it is reasonable to take when investing the assets in a reserve.

Recently, I’ve received increasing feedback from colleagues that many clients’ main goal when choosing a pension fund is to maximise risk blindly. This has led me to wonder: Is this merely a sign of a prolonged period of market growth, where risks are forgotten as markets climb higher each day, or has the rapid spread of financial literacy and the popularisation of investing inadvertently or even deliberately overlooked some important, albeit less popular, concepts?

As Howard Marks notes in his memo, bond yields are currently higher than they were between 2009 and 2021, which should increase their relative attractiveness compared to stocks. Meanwhile, as highlighted by Goldman Sachs, stocks are at near-absolute valuation peaks compared to historical ratios, and returns over the next ten years could be significantly lower than over the past decade. All of this should prompt us to ask: Is maximum risk always the optimal strategy?

As in many areas of life, independent thinking is valuable in investing, and excessive simplification carries risks. Rules of thumb and generalisations – such as “stock markets offer better returns than bonds” or “younger investors’ portfolios should consist entirely of stocks” – are often helpful but should not be treated as dogma.

At LHV, our investment team has always factored both risks and expected returns into the investment process. We believe markets are cyclical, with times when taking risks is rewarding and times when caution is advisable. When bonds offer solid returns and stock markets are at all-time highs – not only in absolute price terms but also relative to corporate fundamentals – it may be wise to reassess your risks and potential returns. Higher risk does not inherently guarantee high returns; rather, it implies a wider gap between potential positive and negative outcomes compared to a lower-risk investment.

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LHV Pensionifond Aktiivne III

Recipient
AS Pensionikeskus

Account
EE547700771002908125 - LHV Pank AS
EE961700017004379157 - Luminor Bank AS
EE141010220263146225 - SEB Pank AS
EE362200221067235244 - Swedbank AS

Explanation
30101119828, EE3600010294, IK:Your ID Code

Amount
Amount invested in euros.

Disbursements

Pension agreement

The state does not tax payments from the 3rd pension pillar if you have concluded an insurance contract under which regular pension payments will be made to you for the rest of your life.

See more at Pensionikeskus.ee

Resale of shares

After reaching the age of 55 (if you started making Pillar III contributions before 2021), but not before five years have elapsed from the initial investment, the income tax on disbursements is 10%. If you have joined the third pillar before 2021 and want to take out what you have collected before the age of 55, the income tax is 20%. Those who have joined the third pillar from 2021 can withdraw money from the third pillar at a more favorable income tax rate (10%) if there is less than 5 years until retirement age.

The third pillar savings can also be bequeathed

The heir can then decide what to do with the inherited assets—whether to transfer them to their pension account or to withdraw the amount in cash.
Income tax of 20% applies to cash withdrawals.

LHV Pensionifond Aktiivne III

Biggest investments

Biggest investments in Estonia

Asset Classes

Information about the fund

Terms and Conditions

Prospects

Reports

Other documents

October 2024: Gold drives positive returns in the stock portfolio

September 2024: The largest indices ended the month positively

August 2024: August brought good buying opportunities

July 2024: We made a new major investment

LHV Pensionifond Aktiivne III

Disbursements

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