Norway’s Huge Sovereign Wealth Fund Is Increasing Its Exposure To Equities

The past couple of weeks have been dominated by headlines around the risk of a potential world recession taking hold. That would be expected to be accompanied by a turning of the long running bull cycle in equities that is now the longest in history. But Norway’s Government Pension Fund Global, the oil-financed sovereign wealth fund that is the world’s largest, don’t seem to expect an impending slump in equities. Over the second quarter the fund increased the total percentage of its equity holdings to new record levels.

The fund’s position seems to go against the mainstream thinking that it’s time to dial down exposure to risk and move capital into defensive asset classes such as bonds. Data published by Refinitiv and Lipper indicates as a whole, European investors withdrew €53.7 billion from equities markets over the first six months of 2019. Over the same period, €130.7 billion was invested into bond funds.

But Norway has now upped the share of its overall portfolio held in equities to 69.3%. That represents a 3% increase since the end of last year. Over the same period the fund has reduced its allocation to fixed income by 2.5%. Roughly 34% of the funds equity holdings are in European shares, 43% in North American, mainly the USA, and 17% in Asian equities. The fund owns stock in 9158 companies from 73 different countries. UK equities are the second largest allocation by country after the USA.  9.4% of the fund is invested in London-listed companies.

Source: The Times

The Government Pension Global Fund is managed by the Norges Bank Investment Management (NBIM), a division of Norway’s central bank. It advises the Scandinavian oil producer’s finance ministry and parliament whose sign off is required for any changes in the fund’s investment structure.

The question is why the fund is taking a contrarian position to the wider market by seemingly gearing up rather than reducing its risk profile. Does its management believe the equities bull run still has life left in it? Perhaps but not necessarily. NBIM chief executive Trond Grande told the Financial Times that the increase in the portion of the fund held in equities was mainly a result of increases in the value of existing holdings rather than other assets having been sold off and reallocated to equities. However, some new money was also put into equities over the fourth quarter of 2018.

The fund has also steadily grown its exposure to equities almost every year since 1998 so it is probably more of a broader long term trend than any particular position on the prospects of equities markets at any given moment. Analysts have also noted that some of the biggest jump’s in the fund’s overall exposure to equities have been made towards the top of cycles and not especially well timed.

Unfortunately, it doesn’t appear as though NBIM has access to any exclusive insights that might reassure investors that equities markets might stay healthy for some time yet. However, it does highlight the fact that the huge fund refuses to react to temporary market turbulence or speculation around what might happen in the short term. It’s steadfastly pursuing a long term strategy regardless of short term signals or volatility.

That’s something smaller investors can learn from. Unless you need to cash in on investments in the short to medium term, in which case it makes sense to try to preserve value, don’t try to ‘time’ the market. It’s almost impossible and significant mistakes can be made when it’s attempted. Ignore the noise and keep to the long term plan!