If we took a straw poll of readers and asked which country has the world’s biggest sovereign wealth fund, the chances are Saudi Arabia and Singapore would come high up the list if not at the top.
In fact, the largest is Norway’s Government Pension Fund Global which has a value of more than $1.6 trillion.
When the country discovered large offshore oil fields at the end of the 1960s, the government decided it should use the huge amounts of revenue created by oil and gas energy exports to build a fund to shield the economy from the ups and downs of energy prices.
Also, the government acknowledged that one day its oil and gas would run out, so the fund was created to invest for the long term and ‘safeguard the future’ of the economy.
The fund was created in 1990 and in 1996 it made its first investments – today half the money in the fund comes from oil and gas and the other half is from its return on investment.
The good news is, the managers of the fund, Norges Bank Investment Management, are and have for a long time been fans of the UK market.
HOW DOES THE FUND INVEST?
Ever since inception, and unusually for a pension fund, the Norwegian state scheme has preferred equities to bonds and today stocks account for around 70% of the portfolio.
Amazingly, the fund owns close to 1.5% of all the shares in listed companies worldwide with holdings in 9,000 different businesses and large exposure to the US.
In 2023, the fund posted record profits bolstered by big gains on its tech holdings including Alphabet (GOOG:NASDAQ), Amazon.com (AMZN:NASDAQ), Microsoft (MSFT:NASDAQ) and Nvidia (NVDA:NASDAQ).
The next largest asset type is fixed income, which makes up 27.1% of the portfolio. The greatest share is held in government bonds, but the fund also invests a portion in debt issued from the corporate sector.
In addition to equities and fixed income, the fund invests in unlisted real estate and renewable energy infrastructure, generating rental income.
This part of the portfolio is small but covers 890 investments globally, mainly in the office and retail sectors. Between 2012 and 2022, these investments grew over eight-fold, including a 25% stake in London’s Regent Street, one of the city’s busiest shopping districts with over 7.5 million visitors annually.
Finally, the fund lends to countries and companies which generates a steady flow of income.
HOW HAS THE FUND PERFORMED?
In 2023, the fund gained 16.1% in Norwegian krone to NOK15.76 trillion or $1.45 trillion, led by a 21.3% return on its equity investments, while its fixed-income holdings gained just 6.1% by comparison, its renewable infrastructure investments returned 3.7% and its unlisted real estate portfolio lost 12.4%.
As well as an outstanding performance by US tech stocks, the depreciation of the Danish krone against several of the main currencies helped lift returns.
In the first quarter of this year the fund did better still, registering a 6.3% return (over 25% annualised) taking its total value to NOK17.9 trillion or $1.625 trillion.
The equity portfolio returned 9.1%, while fixed income returned -0.4%, unlisted real estate returned -0.5% and renewable energy infrastructure posted an 11.4% loss, but once again the weak krone had a positive effect.
Despite the distinctly lacklustre returns on its infrastructure investments, the fund has signed two new deals this year for a total of more than €500 million to increase its exposure to solar plants and onshore wind generation in Spain and Portugal.
Reinforcing its ‘green credentials’, every so often the fund excludes certain companies from its investment list, presumably with the idea that exclusion will force the firms in question clean up their act.
The most recent companies to be excluded are Hong Kong-based Jardine Matheson Holdings (JAR) and Jardine-controlled PT Astra International ‘due to unacceptable risk contributing to or being responsible for severe environmental damage’, while Israeli conglomerate Delek was excluded late last year due to an ‘unacceptable risk of contributing to or being responsible for serious breaches of ethical norms’ due to prospecting for oil offshore of West Sahara.
WHICH UK STOCKS DOES THE FUND OWN?
At the end of last year, the fund owned shares in more than 330 UK companies with a total market value of around $69 billion making the UK the third-biggest market behind the US and Japan in terms of size of investment.
UK holdings run the gamut from private equity firm 3i (III) to specialty chemical maker Zotefoams (ZTF) and vary in size from a $6 billion-plus stake in oil giant Shell (SHEL) all the way down to a $500,000 holding in appliance safety control maker Strix (KETL:AIM).
In terms of sectors, the fund’s biggest exposure as of last December was in financial stocks with a combined investment of $12.9 billion, from a $4.3 billion holding in HSBC (HSBA) down to an $80,000 holding in emerging market bond investor Ashmore (ASHM).
Interestingly, the next-biggest exposure is industrials where the fund holds just under $10 billion worth of shares in 80 companies, the highest number of stocks in any UK sector, including significant exposure to engineering through companies such as Halma (HLMA), Melrose (MRO), Rolls-Royce (RR.) and Spirax-Sarco (SPX).
Also, alongside its exposure to unlisted real estate, the fund has big positions in half a dozen UK real estate companies including a 25.2% voting stake in Shaftesbury Capital (SHC) worth over $800 million, a 9% stake in Segro (SGRO) worth more than $1.25 billion and an 8% stake in student accommodation provider Unite Group (UTG) worth over $460 million.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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