Total assets and return on investment

In 2023, the predominant narrative revolved around rising equity prices and declining interest rates. In 2023, the foundation realized a return on investment of 12.1%; total return on investment was DKK 550 million. Broken down into asset classes, the return on equities amounted to DKK 339 million, while the return on the fixed income portfolio amounted to DKK 211 million DKK.

The net capital at the end of 2023 was DKK 4,761 million, compared to a net capital of DKK 4,659 million at the end of 2022. The foundation distributed DKK 431 million to its grant holders in 2023, which is below the goal of an average distribution level in the DNRF act of DKK 538 million (in 2023 prices). Administrative expenses, including depreciation, were DKK 13.6 million in 2023.

Total return
Calculated as a time-weighted return, the total return on investment in 2023 was 12.1%, which was higher than the benchmark return of 11.7%. The primary reason for the excess performance was due to strong excess performance from equities, Danish nominal bonds, and European corporate bonds.

From a five-year perspective, covering the period 2019 to 2023, the foundation’s annual return of 4.1% was higher than the annual benchmark return of 3.9%. The return in 2023 on the different asset types is presented in the table.

Comments on the 2023 return for the different asset types are below.

Return on equities
The foundation’s equity portfolio consists of a combination of equities in developed countries and emerging markets countries. The emerging markets countries include China, South Korea, Brazil, Mexico, Taiwan, India, and others. The split between the developed and emerging countries in the portfolio follows the breakdown in MSCI’s benchmark for global equities (MSCI ACWI).

Despite a banking crisis at the beginning
of 2023, the stock market ended up giving a high return in 2023. The return from the DNRF’s developed markets equity portfolio was 20.3% compared to a benchmark return of 19.6% (MSCI World). A significant driver of the high return in 2023 from equities was the large increase of the stock price of the large tech companies referred to as the “Magnificent seven” which include the companies Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. The main reason the DNRF’s portfolio’s return was higher than the benchmark in 2023 is due to the companies that are excluded because the foundation’s policy for responsible investments performed worse than the overall stock market.

Eighty percent of the exposure to USD (United States dollar) and JPY (Japanese yen) in the developed markets equity portfolio is hedged to EUR.

During 2023 both the USD and JPY weakened against the DKK and the EUR. This resulted in a positive return from the currency hedging of 1.2%.

The emerging markets equity portfolio represented an average of 3.9% of the total assets during the year. This investment took place through the mutual fund GW&K Emerging Markets Equity Fund until the end of July when it was replaced by a passive Emerging Markets mandate through the mutual fund Danske Invest Index Global Emerging Markets Restricted. The fund tracks the MSCI Emerging Markets Climate Change benchmark, which seeks to adapt to the transition to a lower carbon economy. The return on the emerging markets equities portfolio in 2023 was 5.9%, which is lower than the benchmark-return (MSCI emerging markets) of 6.4%. Emerging markets equities return compared to global equities for developed markets was dragged down by a negative performance from Chinese equites. The lower return from the portfolio compared to the benchmark was mainly due to the lower return resulting from the responsible investment policy.

Return on bonds
In the beginning of 2023, there was an expectation among investors that the high inflation-level would be for a long period. This resulted in increasing interest rates
in the first three quarters of the year. The fear, however, vanished in the last quarter of 2023 resulting in a decline in the interest rates. The net result for the year was a net decrease in interest rates - benefited the return on bonds in general in 2023.

The Danish nominal bond portfolio is managed by Nykredit Asset Management (Nykredit); the portfolio had a return of 7.4%, which was higher than the benchmark return of 6.2%. The excess return stems from the underweight in low-coupon Callable bonds and overweight in high-coupon Callable bonds, where low-coupon bonds have underperformed in the first three quarters. In addition, an overweight in Adjustable Rates Mortgages (flex-bonds) against government bonds has added to the excess return because of a tightening of the interest rate spread between government bonds and Danish mortgage bonds.

The global inflation-linked bond portfolio
is managed by Danske Bank Asset Management. The non-EUR currency exposure is hedged to EUR. The portfolio gave a return of 3.3% as the benchmark return.

The European corporate bond (investment grade) portfolio is managed by Danske Bank Asset Management. The portfolio had a return of 9.2%, compared to 8.6% for the benchmark. The return for this asset class was positively affected by lower interest rates and a tighter spread between government and credit yields (credit spread) during 2023. The return from the portfolio was higher than the return of the benchmark mainly because of the security selection, where Banks and REITs (Real Estate Investment Trusts) being the major positive contributors. A slightly higher risk in the portfolio at the beginning of the year, which was gradually reduced to a neutral level as credit spreads tightened, also contributed positive to the performance.

The US corporate bond (high yield) portfolio is managed by Columbia Threadneedle. During 2023, the high-yield bond portfolio had a return of 9.6%, which is lower than the return from the benchmark of 10.3%. The relative performance was lower than the return from the benchmark primarily due to management fees.