Norway’s sovereign wealth fund, the world’s largest, said a slump in emerging markets held back returns in the second quarter amid concern over a slowdown in the Chinese economy.
The fund lost 5.9 percent on its stock investments in emerging markets in the second quarter, in part because of speculation of weaker growth in China, the investor said. In total, the $760 billion fund rose 0.1 percent, or 17 billion kroner ($2.9 billion), in the period, helped by U.S. and Japanese stocks. Stocks rose 0.9 percent, while bond investments dropped 1.4 percent. Real estate investments rose 3.9 percent.
“Equity returns were boosted by a strong market in the U.S. and Japan, while emerging markets pulled in the other direction,” said Yngve Slyngstad, the fund’s chief executive officer. “Fixed-income returns were undermined by rising global yields.”
The investor, which posted its second-best year in 2012, is undergoing a shift in strategy to capture more global growth. It is moving asset allocation away from Europe as emerging markets in Asia and South American gain a bigger share of global output. The fund said 10 percent of its equity portfolio was invested in emerging markets.
Emerging market equities and bonds slid in the period, and about $4.2 trillion was erased from the value of global equities over a month after Federal Reserve Chairman Ben S. Bernanke in May signaled that policy makers could pare stimulus should the world’s largest economy show sustained improvement. The MSCI Emerging Markets Index slumped 9 percent in the second quarter.
Europe’s biggest equity investor, which gets its guidelines from the government, held 63.4 percent in stocks in the period, up from 62.4 percent in the first quarter. Its bond holdings slid to 35.7 percent from 36.7 percent of the fund while real estate comprised 0.9 percent. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, while allowing for fluctuations. The fund mostly follows global indexes and has some leeway to stray from those benchmarks.
The fund’s largest stock holding at the end of the quarter was in Nestle SA. The largest bond holding was in U.S. Treasuries.
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’s largest oil and gas producer. The fund, which has an average holding of about 1.2 percent of the world’s listed companies, invests abroad to avoid stoking domestic inflation.
The government deposited 58 billion kroner of petroleum revenue into the fund in the second quarter. The return exceeded by 0.3 percentage point the benchmark set by the Finance Ministry.
The fund may need to be restructured to help boost returns, according to Conservative Party leader Erna Solberg, who most polls suggest will replace Jens Stoltenberg as prime minister after Sept. 9 elections.
The investor got its first capital infusion in 1996 and has been taking on more risk as it expands globally. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth.