Norway’s sovereign wealth fund, the world’s largest, gained 692 billion kroner ($115 billion) last year as stocks rallied, forcing it to pare its equity holdings for the first time ever to comply with risk mandates.
The Government Pension Fund Global returned 15.9 percent in 2013, after rising 13.4 percent the year before, the Oslo-based investor said today. The $840 billion fund’s stocks returned 26.3 percent, while its bond investments climbed 0.1 percent. Real estate investments gained 11.8 percent.
It was a net seller of stocks as it adjusted holdings to comply with the government’s 64 percent limit on equities in its portfolio and sold 150 billion kroner in the fourth quarter. The fund follows a rebalancing strategy where it buys assets that fall in price and sells as they rally.
“This was the first time that rules-based rebalancing of the equity allocation in the fund’s benchmark index has been triggered,” the investor said. “The adjustment of the actual portfolio will take place over a longer period but the fourth quarter of 2013 was still the first in the fund’s history when we sold more shares than we bought, and this was despite significant inflows of new capital.”
Stocks rallied as the U.S. Federal Reserve kept its quantitative-easing program running for longer than expected and the European Central Bank pledged to keep interest rates low for an extended period. The MSCI World Index of stocks rose 24 percent in 2013, the most since equity markets recovered from the financial crisis in 2009.
The fund, which gets its investment guidelines from the government, held 61.7 percent in stocks, 37.3 percent in bonds and 1.0 percent in real estate at the end of 2013. It’s mandated to hold about 60 percent in stocks, 35 percent in debt and 5 percent in properties. While the investor mostly follows global indexes, it has some leeway to stray from the benchmarks.
Central bank governor Oeystein Olsen earlier this month said the government should consider lowering the bond portion of the fund to 20 percent to 25 percent to boost returns.
Oil Fund Chief Executive Officer Yngve Slyngstad in October warned of a “correction” in stocks and said today that the fund is still using new inflows to buy bonds. While the MSCI index dipped in late January, it recovered and is up about 3.9 percent since Slyngstad’s comments on Oct. 25.
The government deposited 239 billion kroner of petroleum revenue into the fund in 2013. The return exceeded by 1.0 percentage point the benchmark set by the Finance Ministry.
Its largest stock holding at the end of the year was Nestle SA (NESN) at a value of 39.3 billion kroner. The largest bond holdings were in U.S. Treasuries, followed by Japanese and German government bonds. Mexico was the fifth largest holding.
Norwegian politicians are debating the fund’s investment mandate as the Conservative-led government that came to power last year is due to release a white paper on the subject in April. Prime Minister Erna Solberg has said infrastructure and private equity would be a good fit for the oil fund, echoing Meanwhile, the opposition Labor party has proposed that the fund cut its holdings in coal-producers.
Slyngstad said today the the fund last year sold 27 mining companies, including coal and gold miners.
The fund is also shifting its holdings to capture more of global growth, and has steered investments away from Europe as emerging markets in Asia and South America increase their share of the world economy. The fund has weighted its bond portfolio according to gross domestic product, moving away from a market weighting to avoid nations with growing debt burdens.
Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA (STL), the country’s largest energy company. Norway is western Europe largest oil and gas producer. The fund invests abroad to avoid stoking domestic inflation.
The first capital was put into the fund in 1996 and it has since been expanding the scope of its investments. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth.
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