Norway’s $977.4 billion Government Pension Fund Global returned 2.6%, or 202 billion kroner ($25.53 billion), in Q2 of 2017.
The fund had a market value of 8.020 trillion kroner as of June 30, of which 65.1% was invested in equities, 32.4% in fixed income, and 2.5% in unlisted real estate. Equity investments returned 3.4%, while fixed-income investments returned 1.1% for the quarter. Investments in unlisted real estate returned 2.1%, and the total return on investments was 0.3% higher than the return on the benchmark index.
“The stock markets have performed particularly well so far this year, and the fund’s return in the two first quarters was 6.5[%]. This gives a total return of 499 billion kroner, which is the best half-year return measured in Norwegian kroner in the history of the fund,” said Trond Grande, deputy CEO of Norges Bank Investment Management.
However, Grande added that “we cannot expect such returns in the future. The record-high return is primarily due to the fact that the fund has become so large.”
The returns would have been even higher, however, the kroner appreciated against the main currencies during the quarter, which decreased the value of the fund by 32 billion kroner. In the second quarter, 16 billion kroner was withdrawn from the fund by the government.
While the fund said that the returns were driven by continued healthy growth in the global economy, it added that some macroeconomic data, especially for the US economy, were weaker than the market had anticipated. Growth expectations for emerging markets were mainly unchanged from the previous quarter, while those for developed markets improved, which was due to greater optimism in the euro area.
The strongest returns came from European equities, which returned 6.3%, and accounted for 36.6% of the fund’s equities at the end of Q2. The UK, which was the fund’s largest market in Europe with 9.7% of its equity investments, returned 3.3%, or 1.5% in local currency. North American stocks returned 0.7%, and comprised 38.6% of the equity portfolio. US stocks, which were the fund’s single-largest market with 36.4% of its equity investments, returned 0.8%, or 2.9% in local currency.
The health-care sector delivered the best return for the fund during the quarter, as health-care stocks returned 5.7%, spurred on by market expectations of stronger earnings in the sector. The fund said that the inability of the US Congress to significantly alter its health-care system’s regulatory framework was interpreted by the market as a continuation of stable operating conditions.
Industrials returned 4.9%, driven by an improved outlook for economic growth, particularly in Europe and emerging markets. Returns were strong in the industrial machinery sector, which was attributed to increased demand for construction machinery, and more stable demand for capital goods in the commodity industry.