Volatility a Friend as World's Biggest Wealth Fund Hoards Stocks
Norway's $1 Trillion Fund Likes Volatility as Stock Spree Looms
(Bloomberg) -- Norway’s sovereign wealth fund says a spike in volatility may well help it with a plan to add almost $40 billion in stocks.
As the $1 trillion Oslo-based fund works its way toward a long-term allocation target of 70 percent in equities, “increased volatility is as much of an opportunity as a challenge,” Yngve Slyngstad, the chief executive officer of Norges Bank Investment Management, which runs the fund, said in an interview with Bloomberg TV.
Last time the fund was cleared by the Finance Ministry to raise its equity stake, to 60 percent from 40 percent, was right before the global financial crisis in 2008. The timing was perfect for Norway’s fund, which thanks to income from oil and gas production went on a shopping spree for cheap stocks.
“That was of course the perfect situation,” Slyngstad said in the interview on Tuesday after presenting the fund’s annual report. “If the opportunity should arise again, of course that would be something that would be beneficial.”
The fund, the world’s biggest of its kind, raised the portion of equities in its portfolio to 66.6 percent at the end of last year, 0.7 percentage point higher than the previous quarter.
“We will use the time that we need to get in place the new and higher strategic allocation to equities,” Slyngstad said. “Our advice to increase the equity share of the fund is based on that premise, that over the very long term the fund is able to take more real financial-market risk than what we have done historically.”
Slyngstad declined to make predictions about future movements in markets, but said during his presentation that the fund should be prepared for significant fluctuations in the years ahead. It should be ready to withstand variations of about 900 billion kroner ($115 billion) every sixth year, he said.
On the fixed-income side, the fund has had a greater share in short-duration bonds than the benchmark index it follows in order to handle volatility. That helped the fund last year, making it “less sensitive than the benchmark to a general increase in yields,” it said in its report. It intends to keep this bias, Slyngstad said in the interview.
“We have said that we have a shorter duration in the portfolio than the overall market, and that is something that we do not intend to change,” he said.
To contact the reporters on this story: Mikael Holter in Oslo at mholter2@bloomberg.net, Sveinung Sleire in Oslo at ssleire1@bloomberg.net.
To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger, Stephen Treloar
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