The Aasta Hansteen gas platform operated by Statoil ASA near Stord, Norway, on Thursday, March 8, 2018.© 2018 Bloomberg Finance LP
When the world’s largest sovereign wealth fund speaks, investors tend to listen. This week the Norwegian Government’s Pension Fund, which owns 1.4% of all the world’s listed companies, said that it had bought equities during the market’s rout from November to January and that it intended to increase its holdings in British equities, assets, and bonds, regardless of the outcome of the negotiations on Brexit.
“The fund net bought equities for 185bn NOK in fourth quarter 2018. Most of this was bought in November and December,” Yngve Slyngstad, CEO of Norges Bank Investment Management, said.
In a tough year for global investors, the fund delivered a negative return of -6.1% over 2018. Equity investments returned -9.5%, while investments in unlisted real estate returned 7.5%. The market value of the fund’s assets fell to Nkr8.25 trillion ($966 billion) from Nkr8.5 trillion at the end of 2017.
“Although performance was weak in 2018, the long-term return has been good and higher than the return on the benchmark index,” said Øystein Olsen, Chair of the Executive Board of Norges Bank which manages the fund.
The commitment to Britain reflects a view held by some British investors https://www.forbes.com/sites/heatherfarmbrough/2019/03/02/norway-fund-buys-on-weakness-and-backs-britain/ that many U.K. stocks are now becoming attractive again. Slyngstad confirmed that British stocks were among those bought up by the fund at the end of last year and early 2019.
“We will continue to be significant investors in Britain”, Slyngstad said. “And we foresee that over time that our investments in the UK will increase.”
“With our time horizon, which is 30 years plus, current political discussions do not change our view of the situation,” he said, when asked about the risks caused by Britain’s plans to quit the EU on March 29.
After U.S. and Japanese companies, the fund’s third-largest equity holdings are in British stocks. The fund’s second largest property investments are also in the U.K., including several prestigious Crown Estate properties on Regent St and the West End.
Warren Buffett takes a long term, contrarian approach too.© 2017 Bloomberg Finance LP
Why should investors listen?
Well, it’s Warren Buffet who said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
The fund’s contrarian approach is in line with this thinking, and it is also consistent with the ultra-long term approach the fund has always taken. This also tends to deliver the best returns to investors over time, because it involves very little portfolio churning and gives companies a chance to ride out the short term vagaries of financial markets.
Over ten years, the fund has delivered a return of 8.3%, or 36.5% in real terms after annual management charges and inflation. The Norwegian fund owns shares in 9158 companies across the world, including Apple, Nestlé, Microsoft and Samsung.
Set up before Norway found its first oil in 1969 at Ekofisk, the largest oil field ever found at sea, the fund’s objective has always been to manage Norway’s oil resources over the long-term and to ensure strong government control over them.
More recently, however, its commitment to sustainability has clashed with the essence of oil and gas exploitation. Writing in the Financial Times, Richard Milne described governance as its ‘potential Achilles heel.’
This reflects a wider Norwegian issue as the country struggles to balance sustainability and its dependence on oil and gas. The Norwegian fund’s 2018 report also shows that it cut its stake in €1bn stake in the German carmaker Volkswagen after a long argument over corporate governance and dismay at its diesel scandal.