The Norwegian sovereign wealth fund this morning reported its results for the second quarter of 2017.
The fund - known more formally as the Government Pension Fund Global - returned 2.6%, or 202bn kroner, in the period.
The fund is managed by Norges Bank Investment Management (NBIM). Equity investments returned 3.4%. Fixed income returned 1.1%. Unlisted real estate returned 2.1%. Total return was 0.3% points higher than the return on the benchmark index.
The benchmark index from the Ministry of Finance consists solely of global equity and bond indices. It comprises an equity index based on FTSE Group’s Global All Cap stock index and a bond index based on various bond indices from Bloomberg Barclays Indices.
Market value up
The fund had a market value of 8,020bn kroner as at 30 June 2017, an increase of 153bn kroner. Of this
- 65.1% was invested in equities
- 32.4% was invested in fixed income
- 2.5% was invested in unlisted real estate
The fund has generated an annual return of 5.9% since the establishment of NBIM in 1998, measured in the fund's currency basket. After management costs and inflation, it was 4%. The current value shown on the NBIM website is around 7,709bn kroner.
The total return of 499bn kroner is the best half-year return measured in Norwegian kroner in the history of the fund. The sheer scale of the fund is responsible for the return. It cannot be expected to be repeated, cautioned Trond Grande, deputy , NBIM CEO.
Trond Grande, courtesy of NBIM
In the second quarter, the government withdrew 16bn kroner from the fund. The government intends that its withdrawals over time should be equivalent to 3% of the fund's value, down from the previous 4%.
This so-called fiscal rule helps to gradually phase oil revenue into the economy, explains NBIM. Spending just the return on the fund rather than eating into capital means the fund will also benefit future generations, it adds.
Beyond the headlines
Looking beyond the headlines, a study of the more detailed government report shows healthcare stocks delivered the best return in the second quarter at 5.7%. They have been driven by market expectations of stronger earnings in the sector, says NBIM.
Industrials returned 4.9%. This is on the back of the improved outlook for economic growth, especially in Europe. Emerging market returns were strong in the industrial machinery sector. This was partly driven by increased demand for construction machinery.
NBIM says consumer goods companies returned 4.4%, due partly to returns in the European food and beverage industry. Luxury goods also made a positive contribution. The automobile industry made the most negative contribution.
Oil and gas weakest
Oil and gas stocks were the weakest performers, returning -6.1%. The investment in consumer goods company Nestlé SA made the most positive contribution to the return in the second quarter.
This was followed by technology company Tencent Holding Ltd and healthcare company Novartis AG. The companies that made the most negative contributions were
- General Electric Co
- AT&T Inc
- International Business Machines Corp
NBIM says the fund participated in 41 initial public offerings in the quarter. The largest was at financial company Allied Irish Banks Plc, followed by consumer services company Altice USA Inc and healthcare company Galenica Santé AG.
The fund's ownership activities in the second quarter included
- Voting at 6,818 general meetings in the second quarter, considering and voting on a total of 79,876 proposals
- Participating in two consultation processes with index providers regarding equities without voting rights
- Publishing a report from a commissioned research project on the relationship between sustainability disclosure and corporate performance
- Publishing an expectation document on tax and transparency
- Publishing its view on CEO remuneration
Real estate expansion continues
The fund is continuing to expand its real estate portfolio. Norges Bank Real Estate Management has most recently (18 August) acquired a 48% interest in 375 Hudson Street in New York City. This is in a joint venture with Trinity Church Wall Street and Hines.
Norges Bank Real Estate Management acquired its 48% share in the 93-year ownership interest for US$223m from Trinity Church Wall Street, valuing the property at $865m. Hines will serve as the operating partner. It has acquired a 1% interest.
Returning to the second quarter, the fund further expanded its Regent Street partnership in the UK with The Crown Estate in May. The partners acquired three properties totalling 54,000 square feet. The fund says it paid £30m, or 331.0m kroner, for its 25% stake.