Norway’s sovereign wealth fund, the world’s largest, rose 447 billion kroner ($79 billion) last year as central bank stimulus measures boosted global stock markets.
The Government Pension Fund Global returned 13.4 percent in 2012, after falling 2.5 percent the year before, the Oslo-based investor said today. The annual return was the second best in the $713 billion fund’s history. Stocks returned 18.1 percent, while its bond investments climbed 6.7 percent. Real estate investments returned 5.8 percent.
Stocks rallied last year after European Central Bank Governor Mario Draghi in July pledged to do “whatever it takes” to save the euro and later presented a bond buying program to bring down interest rates. The U.S. Federal Reserve announced a third round of quantitative easing to stimulate the world’s biggest economy. The MSCI World Index of stocks, which fell to a six-month low in June, gained 13.2 percent in 2012.
“Returns were especially high in the second half of 2012 and can in part be related to actions taken by the European Central Bank that were announced in July,” the fund said.
Europe’s biggest equity investor is undergoing a shift in strategy to capture more global growth to safeguard the nation’s wealth. The fund, which is moving asset allocation away from Europe as emerging markets in Asia and South America gain a bigger share of global output, is “halfway” through its adjustment process, Slyngstad told reporters today.
European holdings accounted for 48 percent of the fund at the end of 2012, down from 53 percent a year earlier, after an increase in investments in emerging markets. The fund is reducing European holdings to about 40 percent.
“While in 2011, the fund invested 150 billion kroner of the year’s capital transfers in European equities, in 2012, the fund invested nearly an equivalent amount in emerging bond markets”, Slyngstad said in a statement.
The investor’s holdings in French government debt fell 25 percent to 44 billion kroner in the fourth quarter. The fund held 79.7 billion kroner in French government debt at end-2011. Investments in Japanese government debt increased 9 percent in the fourth quarter. The fund, which held 22.6 billion kroner in Mexican government debt on Dec. 31, is retooling its bond portfolio to a gross domestic product weighting from a market weighting to avoid nations with growing debt burdens.
“There’s been an unusually good start to this year. We’ll see how it goes in 2013,” Slyngstad said. “What will be particularly challenging in the next five to ten years is that the bond market will have difficulties yielding good returns with the low interest rates we’re seeing.”
The MSCI World Index of stocks has gained 6.8 percent so far this year, while emerging-market stocks rose 0.9 percent.
The fund, which gets its investment guidelines from the government, held 61.2 percent in stocks, 38.1 percent in bonds and 0.7 percent in real estate at the end of 2012. It’s mandated to hold about 60 percent in stocks, 35 percent in bonds and 5 percent in real estate. While the investor mostly follows global indexes, it has some leeway to stray from those benchmarks.
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, 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 government deposited 276 billion kroner of petroleum revenue into the fund in 2012. The return exceeded by 0.2 percentage point the benchmark set by the Finance Ministry.
The fund’s largest stock holding at the end of the year was Nestle SA at a value of 30.1 billion kroner.
The largest bond holdings were in U.S. Treasuries at a value of 324 billion kroner, followed by Japanese and German government bonds.
The fund got its first capital infusion in 1996 and has been taking on more risk as it expands globally, raising its stock portfolio from 40 percent in 2007. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth. It’s struggling to meet a 4 percent return target after rates plunged to record lows and global stock markets failed to retrace a 2007 peak.
Mikael Holter in Oslo at +47-22-00-8209 or firstname.lastname@example.org