Norway’s $1-Trillion Wealth Fund Expects Big Swings In Value

The world’s biggest sovereign wealth fund, Norway’s US$1-trillion Government Pension Fund Global, expects large value fluctuations ahead, as it will rely more on the stock market value and less on income from Norwegian oil production, Yngve Slyngstad, CEO of the fund’s manager Norges Bank Investment Management, said on Tuesday.

“We have to expect significant swings in coming years,” Yngve Slyngstad said at a news conference in Oslo for presenting the fund’s 2017 report and results.

“We have to expect value swings of more than 900 billion crowns (US$115 billion),” Slyngstad said, as carried by Reuters.

The investments in the Norwegian fund returned 13.7 percent in 2017, the third-highest return since the fund was created in 1998, and the highest-ever return in terms of Norwegian crowns, 1.028 trillion crowns, (US$131 billion), said the fund that capped an eventful year, in which it crossed the historic US$-1-trillion mark and recommended that it ditch oil and gas stocks—more than US$35 billion worth of shares—from the fund’s equity benchmark index to make Norway’s wealth and economy less vulnerable to a permanent drop in oil and gas prices.

The announcement that the world’s biggest wealth fund could ditch energy stocks shocked the markets last year and had analysts wondering if other large institutional investors would follow suit. Norway is currently reviewing whether to accept the recommendation of the fund to stop investing in oil and gas stocks.

Last year, 66.6 percent of the fund’s market value was invested in equities, 2.6 percent in unlisted real estate, and 30.8 percent in fixed income.

“With an allocation to equities gradually rising towards 70 percent, one have to be prepared for substantial fluctuations in the value of the fund from year to year,” the fund’s board said in the annual report, noting in the accompanying presentation that it had “to expect large value fluctuations.”

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Breaking down the equity performance, the Norwegian fund said that “Oil and gas companies performed worst in 2017 with a return of 4.1 percent due to lower long-term expectations for oil prices. US companies in particular, hit by a growing gap between US and international oil prices, made a negative contribution to the return.”

The fund’s worst-performing investment was in General Electric Co, followed by ExxonMobil, the Norwegian fund said.

As at 31 December 2017, the fund’s top 20 largest equity holdings in terms of Norwegian crowns included investments in Royal Dutch Shell (3rd), Exxon (17th), and BP (18th), with the investment in Apple leading the pack.

By Tsvetana Paraskova for Oilprice.com

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