Norway’s sovereign wealth fund had its smallest quarterly gain in a year, foreshadowing this month’s global stock rout amid concern U.S. and European economic growth is stalling.
The $534 billion Government Pension Fund Global returned 0.3 percent, as measured by a basket of currencies, in the second quarter, the Oslo-based investor said today. The stock portfolio fell 0.7 percent and its bond holdings rose 1.8 percent. It was the worst performance since a loss in the second quarter of 2010.
Global stocks have plunged on concern Europe’s debt crisis will spread to larger economies in the region such as Italy and as a credit downgrade of the U.S. this month intensified speculation the world’s largest economy would reenter a recession. The MSCI World Index dropped 0.3 percent in the second quarter, before tumbling 13 percent since June.
“Two conditions that influenced the second quarter have strengthened in the third quarter,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, at a press conference. “The one being developments in the world economy and the other being uncertainty about government debt.”
Europe’s largest stock investor, which is part of the central bank and gets guidelines from the government, held 60.5 percent in stocks, 39.4 percent in bonds and 0.1 percent in real estate at the end of the quarter. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, which it first bought this year.
The fund said its worst performer in the second quarter was HSBC Holdings Plc, its third-biggest stock holding. The best performer was Nestle SA, its second-biggest holding.
The largest stock holding in the quarter was Royal Dutch Shell Plc at a value of 22 billion kroner. The largest bond holding was in U.S. Treasuries, followed by the U.K. and German government bonds. Italian government debt was the fund’s fifth largest holding and Spanish government debt the eighth largest.
Slyngstad said that the fund held less in bonds from southern Europe relative to its benchmark than in the first quarter. The downgrade of U.S. debt has not affected the fund’s portfolio or thinking, he said.
Norway’s fund lost a record 633 billion kroner in 2008, when the financial crisis erupted. The investor then responded to the rout by increasing its stock holdings, which helped it post a 26 percent return in 2009 and a 9.6 percent gain in 2010.
Slyngstad said the fund was better prepared now to tackle “uncertainties” than in 2008.
Europe’s debt plight has worsened since the end of the quarter and yields have surged since a July 21 European Union summit approved an aid plan for Greece and measures to help other euro-region countries before they need a bailout. The European Central Bank last week shelved its rate increases and resumed bond purchases to support the market and stop the crisis from spreading to Italy and Spain, the third- and fourth-biggest euro-area economies.
Norway’s fund said in June that it had since the end of 2008 through 2010 cut its combined holdings in Greek, Irish, Portuguese, Italian and Spanish government debt by 13 percent to 13.89 billion euros.
The Oslo-based fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally, increasing its stock portfolio from 40 percent in 2007. It first added stocks in 1998, emerging markets in 2000 and this year real estate to boost returns and safeguard wealth.
It completed its first real estate purchase this year, buying 25 percent in the U.K. Crown Estate’s Regent Street and also agreed in June to invest 702 million euros in Paris real estate.
Norway, a nation of 4.9 million people, 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, the country’s largest energy company. Norway is the world’s second-largest gas exporter and the seventh-biggest oil exporter. The fund invests outside Norway to avoid stoking domestic inflation.
The government deposited 53 billion kroner of petroleum revenue into the fund in the second quarter. The return missed by 0.1 percentage point the benchmark set by the Finance Ministry.