Modified duration of fixed income mandates at 31 December 2016







Investment grade corporate bonds issued in dollars

Investment grade corporate bonds issued in euro

French Treasury Bills


4.50 4.51

A reduction in the portfolio s modified duration

The second strategy pursued by the FRR involves reducing the hedging assets modified duration so that the FRR s surplus appreciates when interest rates rise.

Introduction of option-based hedging strategies

Through a strategic allocation encompassing 6% option-hedged investments in developed market equities, the FRR has regularly used option strate- gies to hedge its portfolios. For example, these strategies suitably mitigated the risks to the port- folio at the time of the Brexit referendum in June. Around EUR 2 billion in European equities and EUR 1 billion in US equities were then hedged, equating to around 8.5% of the FRR s assets.

Other mandate changes

Three other notable changes were made to the life of mandates, but did not affect the portfo- lio s exposure: in the eurozone, (capitalisation-weighted) passive equity management mandates were replaced with passive management managed according to the MSCI Momentum Enhanced Value TargetĀ® index, for EUR 530 million. This index optimises exposure to the Value and Momentum factors, and delivered a return on investment of 12.3% in 2016, compared with 9.1% for the capitalisation-weighted index;

the expiry of ADECE Europe (EUR 310 million) and World (EUR 430 million) mandates in July and October respectively. These sales were offset by purchases of futures pending rein- vestment in future optimised passive equity management mandates that include ESG criteria;

the EUR 450 million increase in active man- agement of US equities in December was off- set by a sale of futures on US equities.

A EUR 910 million increase in decarbonised investments.