The Norwegian Oil Fund lost NOK 485 billion in 2018
The Global Pension Fund of Norway (aka the Oil Fund) lost NOK 485 billion last year, the second largest loss in the fund’s history. The loss is, by comparison, about 50 times the size of what Norwegians paid in road tolls in 2018. “No reason to worry,” the Governor of the fund assures.
The oil fund experienced a negative yield of 6.1 per cent last year, corresponding to a loss of NOK 485 billion. It is the second largest loss in the history of the fund – both in value and as a percentage – with the exception of the financial crisis year, 2008. At that time, the investments dropped by as much as 23.3 per cent, in what is seen as an exceptional year. It was due to the severe slowdown in the global markets.
Considerable turmoil and fluctuations in the stock markets led to the rare decrease of the Norwegian Global Pension Fund. Equity investments alone had a negative yield of 9.5 per cent, enough in itself to bring it into the red. Real estate investments dropped by 7.5 per cent, while interest rate investments rose by a meagre 0.6 per cent.
The fund was beaten by the benchmark index (negative relative yield) by 0.3 percentage point.
No reason to worry
Still, there is no reason to worry, even if the fund now consists of 70 per cent shares, says Governor Øystein Olsen and Head of the Norges Bank Investment Management (NBIM), Yngve Slyngstad, when they present the results. The oil fund invests in a very long perspective, and has, therefore, taken into account large fluctuations in value and yield, they emphasise.
“In 2017, we delivered a very good result, with a yield of nearly 14 per cent. With a weak result last year, we have the same message as then; the Executive Board is prepared for significant fluctuations from one year to the next, and results must, therefore, be assessed over time,” Olsen explains.
“In such a perspective, the fund has done well, both in absolute and relative terms,” Olsen continues. He highlights that the oil fund has had an average annual yield of 5.5 per cent over the last 20 years. It has by that beaten the benchmark index in most of them.
The yield has been 4.7 per cent over the past five years, while the ten-year perspective has shown 8.3 per cent.
“If you don’t rock the boat and ride through fluctuations in the securities market. It will provide a higher yield over time, as expected,” the Governor asserts.
Has recouped the loss
The depreciation of the Norwegian currency against several of the main currencies in 2018, contributed to an increase of the fund’s value of NOK 224 billion. The fund was feed NOK 33.8 billion through the year. It is the first time in three years that money was added to the fund.
The fund had a value of NOK 8,256 billion at the end of 2018. The values are divided into shares (66.3 per cent), real estate (3 per cent) and securities (33.7). Significant share purchases at the end of last year and the start of this year, have increased the equity portion to the 70 per cent target.
Slyngstad points out that strong development so far this year has helped to recover the entire loss from last year. The total value of the fund is now several hundred billion more than just two months ago.
The Oil Fund owns a small share in a total of 9,146 companies worldwide, including large companies such as Apple, Nestlé, Microsoft and Samsung. On average, the fund owns 1.4 per cent of all listed companies in the world. Microsoft passed Apple as the company where the fund holds the largest shareholding. The three largest holdings are all in US technology companies.
Of the individual companies, Microsoft and Amazon contributed the most to the yield, while sectorally, the health segment contributed the most. The sectors of industry and materials dragged it down the most.
© NTB Scanpix / #Norway Today