Norway Pension Giant Earns 2.95% in Q2 on Strong Equities, Fixed Income

Central Bank suggests adjusting GPFG's benchmark to increase North American equities.

Norway’s Government Pension Fund Global, the second-largest pension fund in the world, returned 2.95%, or 256 billion kroner ($28.39 billion) in the second quarter ended June 30 to raise its total market value to 9,162 billion kroner, or $1.013 trillion.

Fixed income investments returned 3.1%, while equity investments returned 3.0% and unlisted real estate 0.8%. The overall return on the fund was 0.2 of a percentage point lower than the return on the reference index. As of June 30, the fund’s asset allocation was 69.3% invested in equities, 28.0% in fixed income, and 2.7% in unlisted real estate.

“We had a positive return on our fixed income investments thanks to falling yields,” Trond Grande, deputy CEO of Norges Bank Investment Management, which oversees the fund, said in a statement. “We now have more than 600 billion kroner in bonds with negative yields. That is equivalent to a quarter of our fixed income portfolio, and in line with the markets.”

Grande said that uncertainty about global trade and economic growth hurt returns early in the quarter, however, the markets rallied toward the end of the period, spurred in part by the prospect of more expansionary monetary policy in developed markets.

North American stocks returned 3.6% for the fund and amounted to 41.8% of the equity portfolio. US stocks returned 3.6%, or 4.1% in local currency, and were the fund’s largest market with 39.6% of its equity investments. European shares returned 4.1% and accounted for 33.4% of the fund’s equities. The UK, which was the fund’s largest European market with 8.7% of its equity investments, returned 0.9%, or 3.8% in local currency. And Asia and Oceania equities lost 0.1%, and made up 21.9% of the fund’s equity investments. Japanese stocks were flat, but lost 2.2% in local currency, and amounted to 8.3% of equity investments.

Emerging markets returned 0.6% and accounted for 11.1% of the equity portfolio, and the Chinese stock market, where the fund has 3.8% of its equity investments, lost 4.0%.

Industrials were the strongest-performing sector for the portfolio during the quarter, returning a robust 4.5%, which was attributed to strong earnings at companies in the sector. Consumer goods stocks were close behind, returning 4.4%, which was aided in part by unexpectedly strong demand for luxury goods in China. Utilities returned 3.9%, thanks to lower long-term interest rates in global financial markets, especially in Europe and the US. All sectors made gains for the portfolio except for oil and gas, which lost 1.0% due to falling oil prices and price volatility.

The investment in technology company Microsoft Corp. made the most positive contribution to the return in the second quarter, followed by consumer goods company Nestlé, and social media giant Facebook Inc. The investments contributed negative to the fund were in Google parent Alphabet Inc., real estate company Deutsche Wohnen SE, and semiconductor company Intel.

Meanwhile, Norway’s central bank has advised the fund to adjust the geographical distribution of its benchmark index. Norges Bank Investment Management (NBIM), the central bank’s asset management unit, said the investment strategy for the fund means that its return and risk characteristics largely mirror those of the benchmark index. Because of this, it said the benchmark index plays an important role in its management.

The benchmark index consists of nearly 8,000 companies, and the fund’s average ownership share in the companies is approximately 1.5%.

NBIM said the fund’s benchmark index still has a much higher weight of equities in European developed markets and a relatively lower weight of North American equities.

It recommended that the geographical distribution should be adjusted “by increasing the weight of equities in North America and reducing the weight of equities in European developed markets.”

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