Norway oil fund favours US, Japan, EM bonds over Eurozone

Deteriorating market conditions have caused Norway’s $600bn (€490bn) sovereign wealth fund to further reduce its exposure to the Europe, favouring instead US, Japanese and emerging markets bonds.

Yngve Slyngstad, chief executive of Norges Bank Investment Management (NBIM), which manages the fund, said: “A weaker-than-anticipated development in the world economy weighed on stock markets in the second quarter. There was also increased uncertainty about the repercussions of the European sovereign debt crisis.”

In the second quarter, Government Pension Fund Global reduced its holdings of bonds issued in European currencies to 48.1% of total fixed-income investments, down from 51%. The share of bonds in American currencies was raised to 40.1%, while the share of bonds in currencies of Asia and Oceania increased to 11.6%.

In a quarterly report NBIM said the fund reduced its holdings of British, French and Italian government debt. The fund had already got rid of its Portuguese and Irish government bonds in the first quarter. The oil fund said its Italian and Spanish government bond holdings were worth NOK36.3bn (€5bn) at the end of the quarter, while its exposure to Greecee was almost nil.

The increasingly risk-averse fund also reduced its exposure to stocks. The NBIM report said equity investments returned -4.6% and fixed-income investments returned 1.5%. The return on these investments was 0.2% lower than the return on the fund’s benchmark indices. Investments in real estate returned 0.3%.

“The changes were in line with a strategy to gradually reduce the share of bonds in currencies of developed European nations,” the fund said in a statement. The fund in the quarter also increased investments in government bonds in the currencies of emerging economies such as China, Brazil and India.

The fund’s Q2 market value rose NOK 65bn, to NOK 3,561bn. A weakening of the krone against several major currencies boosted the market value by NOK 70bn. The fund also received NOK 72bn in new capital from the government. This was invested with 80% in equities and 20% in fixed income.

NBIM manages the fund on behalf of the Ministry of Finance (pictured). The Government Pension Fund Global is NBIM’s largest investment mandate. The fund was set up in 1990 as a fiscal policy tool to support long-term management of Norway’s petroleum revenue.

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