OSLO: The world’s biggest owner of listed equities, Norway’s US$1.3 trillion (RM5.34 trillion) wealth fund, says financial firms have displaced tech stocks as the main drivers of returns.
Norges Bank Investment Management, which owns about 1.5% of global stocks, beat its benchmark index in the first quarter, and also outperformed the MSCI World Index.
“Over time, and especially last year, it was technology and green stocks that drove returns, ” Trond Grande, the fund’s deputy chief executive, said by phone. “What we’ve seen in the first quarter has been a bit different, ” with the best returns coming from finance and energy.
For finance, “we should see this in the context of rising long rates, ” which means banks can “lend at higher margins, ” Grande said.
Financial stocks make up 14.6% of the fund’s investments. Public records show JPMorgan Chase & Co is its biggest bank holding, worth about US$3.5bil. The investor owns roughly US$2.9bil of Bank of America Corp and US$2.5bil in UBS Group AG. Its exposure to the financial sector last year delivered a loss of almost US$12bil.
The rise in interest rates that Grande said was behind the financial industry’s outperformance came amid speculation that inflation might be making a comeback, fed in part by record stimulus packages in the United States and Europe.
Asked whether he was worried about inflation, Grande referred to it as a “ghost”. The “important” issue, he said, was the extent to which a return of inflation might be “unexpected and strong”, in which case investors would have to put up with “some volatility”.
“In the long run, equities are an asset class that provide some protection against inflation, ” Grande said.
The fund’s equity portfolio returned 6.6% last quarter. Bonds lost 3.2% while real estate was up 1.4%. Overall, it generated a 4% return. Rising raw material and oil prices propped up the fund’s portfolio of energy stocks, Grande said.
But it was now important “to be prepared for the fact that things can turn, and turn quickly, ” he said.
Created in the 1990s to invest Norway’s oil and gas revenues abroad, the fund delved into renewable infrastructure for the first time earlier this year, as it expands the list of asset classes it holds from stocks, bonds and real estate.
Norway’s government also wants the fund to shed more than 2,000 companies out of roughly 9,000 as part of a proposal designed to ensure it’s not exposed to climate or social risks, particularly in emerging markets. ─ Bloomberg