Dutch pension fund ABP has switched to a new portfolio for equities in developed markets and will invest in a selection of companies that meet its criteria.

Around €107bn (80 per cent) of this €134bn equity portfolio is invested in an index tailormade for ABP. The shares meet ABP’s minimum criteria for sustainable and responsible investing for the long term.

For the remaining approximately €27bn (20 per cent) ABP uses a more concentrated, actively managed portfolio.

ABP expressed its intention to enhance risk management for its investment portfolio and lower expenses by adopting index investing, aligning with its goal of ensuring participants receive a “decent pension in a sustainable world".

The transition to index investing within developed market equities was completed on 1 October 2024 and can be seen in the investment lists on ABP’s website.

In addition to this, the fund decided to include exclusively relatively larger companies in this investment portfolio, reducing the number of companies in the developed market equity portfolio from approximately 2,000 to 1,100.

The fund said that with this reduction, the equity portfolio has retained “sufficient” diversification and will gain more focus and insight into its equity portfolio, allowing it to manage risks better.

Over the long term, ABP expects a return that corresponds with the broad market index.

The decision to change was based on research comparing the investment outcomes of active management and index investing, which revealed that index investing was simpler and more cost-effective.

ABP also saw added value in the smaller concentrated actively managed portfolio in addition to the index portfolio. Specialised asset managers will be able to actively analyse and select companies that best fit ABP's strategy.

It added that the knowledge gained from managing this portfolio would make an important contribution to further improving the criteria with which ABP selects companies.

ABP will continue to monitor the portfolio and encourage the companies in the portfolio to improve their performance in ​​corporate social responsibility.

Furthermore, ABP will gradually apply the new criteria in other investment categories, with corporate bonds as the next investment category, followed by shares in emerging markets.

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