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World’s largest sovereign wealth fund makes $110 bn in H1; more about Norway’s $1.4 tn nest egg

World’s largest sovereign wealth fund makes $110 bn in H1; more about Norway’s $1.4-tn nest egg

World’s largest sovereign wealth fund makes $110 bn in H1; more about Norway’s $1.4-tn nest egg
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By CNBCTV18.com Aug 19, 2021 6:44:43 PM IST (Published)

The fund was created by reinvesting surplus profits from Norway’s petro sector with an eye on securing the Scandinavian country’s future once its oil reserves run out. Apple, Microsoft, Alphabet, Amazon and other US companies make up 45.2 percent of the fund’s equity portfolio.

Norway’s $1.4-trillion sovereign wealth fund managed to get over $110 billion in returns over the past year. The Norges Bank Investment Management generated a return of 9.4 percent, with stocks reporting double-digit returns on the back of several strong rallies. The Oslo-based wealth management fund said its stocks generated returns of nearly 14 percent in the first half of this financial year defying economic pressures from COVID-19 lockdowns in several parts of the globe.

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The $110-billion return was just slightly above the benchmark returns expected from the fund. The fund’s overall returns were dampened by downside movements in bonds and renewable energy infrastructure investments though real estate did see some growth as well.
The Norges Bank is the central bank of Norway that manages the Government Pension Fund, which is the world’s largest sovereign wealth fund with total assets of $1.4 trillion, including 1.4 percent of global stocks and shares. The fund was created by reinvesting surplus profits from the Norwegian petroleum sector with an eye on securing the future of the Scandinavian country once its oil reserves run out. The fund translates to around $248,000 per Norwegian citizen if liquidated.
The fund is being run by Chief Executive Nicolai Tangen, a former hedge fund manager, for nearly a year. Tangen has warned against expecting monumental returns in the future, especially as stock prices remain particularly volatile amid inflationary pressures in markets like the US. The fund has invested in several US companies, where private businesses are increasingly concerned about an entrenched inflation cycle.
“The strongest performance during the period was in sectors exposed more to inflation, such as energy, financials, materials, real estate and industrials,” the fund said.
The fund added that “the highest returns shifted from growth stocks to value stock.” Value stocks being shares of companies with good enterprise value based on good corporate practices and strong fundamental fiscal policies.
Apple, Microsoft, Alphabet, Amazon and other US companies make up 45.2 percent of the fund’s equity portfolio. The companies generated a return of 17 percent so far in the FY21. The fund’s stakes in technology companies also increased by 16.8 percent. The equity portfolio makes up 72.4 percent of the total assets of the fund, over the maximum limit of 70 percent mandated under government rules.
The fund has often come into question over the ethical morality of using surplus funds from a polluting industry. Until Tangen took over, the fund had not invested in any sustainable or renewable energy stocks. Questions were also raised about the stability and safety of the fund as a large part of it remains intrinsically tied to the global stock market. However, the long-term nature of the fund keeps it safe from extreme risk.
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