Norway’s sovereign wealth fund returns €10.2bn in Q2

Norway’s sovereign wealth fund returned 1.3%, or NOK 94bn (€10.2bn), in the second quarter of 2016, which compares with a negative return of NOK 85bn in Q1.

The krone depreciated against the main currencies during the quarter, which increased the value of the fund by NOK 28bn.

The world’s largest sovereign wealth fund , which saw outflows of NOK 24bn in Q2, had a market value of NOK 7.1trn on 30 June.

Equity investments, which accounted for 59.6% of the fund at the end of the quarter, returned 0.7%.

European stocks accounted for 37.2% of the fund’s equities and produced a return of -3.0%. The UK, which is the fund’s largest European market with 10.6% of its equity investments, returned -3.4% as the UK bank and construction sectors were hit “particularly hard” following the Brexit vote.

“After a period of relatively stable markets at the beginning of the quarter, the British decision to leave the EU sparked a sharp decline in Europe. Markets recovered relatively quickly, but with major variations between sectors. Financials, for example, performed weakly, said Trond Grande, deputy CEO of Norges Bank Investment Management.

North American stocks made up 38.7% of the equity portfolio and returned 3.3%. US stocks were the fund’s single largest market, with 36.6% of its equity investments, and gained 3.2%. Stocks in Asia and Oceania, which made up 21.1% of the fund’s equity investments, returned 1.8%.

Fixed-income investments accounted for 37.4% of the fund at the end of the quarter and returned 2.5%.

Positive return on government debt Government bonds made up 57.2% of the fund’s fixed-income investments at the end of the quarter and returned 3.3%. Interest rates in developed markets fell during the quarter, especially after the Brexit vote in the UK.

Corporate bonds returned 2.8% and made up 21.7% of fixed-income investments at the end of the period.

“The fund’s fixed-income investments received price gains due to falling interest rates. In the long term, however, lower interest rates have negative implications for future returns on the fixed-income portfolio,” said Grande.

Real estate investments amounted to 3.1% of the fund at the end of the second quarter and produced a return for the period of -1.4 percent. Investments in unlisted real estate
returned -1.6%, while investments in listed real estate returned -0.9%.

The UK vote to leave the EU triggered significant movements in financial markets and considerable uncertainty, which has pushed the fund to adjust down the estimated value of property investments in the UK from external valuers by 5% as at 30 June.



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