Norway’s sovereign wealth fund, the world’s largest, returned 192 billion kroner ($31 billion) in the second quarter as energy stocks and emerging markets led a rally amid turmoil in Iraq and Ukraine.
The Government Pension Fund Global gained 3.3 percent in the quarter, the Oslo-based investor said today. The $880 billion fund’s stock holdings returned 4 percent and its bonds 2 percent. Real estate returned 3 percent.
“Equity markets rose in the second quarter and emerging markets performed best,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which runs the fund, said in a statement. “Considerable liquidity flowed into the market, which pushed asset prices up.”
Energy producers such as Royal Dutch Shell Plc rallied as violence in Iraq and tensions between Russia and Ukraine pushed up oil prices. The MSCI World Index rose 4.2 percent in the quarter, while benchmark government bonds in the U.S. and Europe also climbed.
The fund’s emerging market stocks gained 7.4 percent, led by increases in India, Russia, Turkey and Brazil, while its oil and gas company holdings rallied 11.8 percent. Developed markets rose 3.7 percent and its Chinese stock 3.2 percent.
The investor, which gets its guidelines from the government, held 61.3 percent in stocks at the end of June. Bond holdings were 37.6 percent and it held 1.2 percent in real estate. It’s mandated to hold about 60 percent in stocks, 35 percent in debt and 5 percent in properties.
Slyngstad said that the fund hasn’t been trading in Russia over the past eight months and that it’s observing the effects on the economy from sanctions. Norway has joined the U.S. and European Union in sanctions against Russia.
“Our investment strategy for any country that sees the kind of turbulence, geopolitical risk, whatever you want to call what have at the moment -- we will neither be buying nor selling,” he said in an interview. “This isn’t a situation that lends itself to our set strategy of investing more when we see volatility.”
The fund held about $3.6 billion in stocks and $4 billion in corporate and government bonds in Russia at the end of 2013, according to its annual report.
While the investor mostly follows global indexes, it has some leeway to stray from those benchmarks.
The government deposited 89 billion kroner of petroleum revenue into the fund in the quarter. The return missed by 0.1 percentage point the benchmark set by the Finance Ministry.
Its largest stock holding was Nestle SA followed by Shell. The biggest bond holdings were in U.S. Treasuries and Japanese and German government bonds. The biggest increases in debt holdings were in Japanese, U.K. and German bonds, while the largest decreases were in Brazilian, Canadian and Swedish.
Last year, the fund was forced to sell stocks for the first time in its history, to comply with risk mandates. The rally in the markets pushed the stock portfolio to above a 64 percent limit, forcing a so-called rebalancing. The fund follows a strategy where it buys assets that fall in price and sells as they rally.
The fund is 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, the country’s largest oil company.
The investor got its first capital infusion in 1996 and has been taking on more risk as it expands, raising its stock portfolio from 40 percent in 2007. The fund first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to boost returns and safeguard wealth.