World's Biggest Wealth Fund Is Prepared for Market Turmoil

(Bloomberg) -- Norway’s $1 trillion wealth fund is getting increasingly concerned about the state of global stock markets.

The fund’s chief executive officer, Yngve Slyngstad, said on Friday that it’s a “warning signal” that a dwindling number of stock markets are doing well and that within each market “fewer and fewer” companies are driving performance.

“We are prepared for market turmoil,” he said at a press briefing in Oslo.

The fund, built from Norway’s oil wealth, had a gain of 2.1. percent, or $21 billion, in the third quarter. North American stocks rose, while the rest of the global equity markets had a weaker development, the fund said.

World's Biggest Wealth Fund Is Prepared for Market Turmoil

Owning on average about 1.4 percent of all global stocks, the fund has few places to hide given its strategy of hewing closely to indexes and spreading its investments broadly across world markets. It’s now facing increasing headwinds after years of high returns, with a potential for losses this quarter amid a broad market selloff from New York to Tokyo.

The fund gained 3.1 percent on stocks and lost 0.3 percent on bonds, while real estate provided a 1.9 percent gain. At the end of the quarter, it held 67.6 percent in stocks, 29.7 percent in bonds and 2.7 percent in real estate. The overall return was 0.2 percentage point lower than the return on the benchmark index.

Health care stocks made the most positive contribution to returns, followed by technology.

The largest stock holdings at the end of the quarter were Apple Inc. and Amazon.com Inc. Its largest bond holdings were in U.S. Treasuries, followed by Japanese and German government debt.

World's Biggest Wealth Fund Is Prepared for Market Turmoil

The fund is also in the midst of increasing the portion of stocks in its portfolio to 70 percent after a go-ahead last year. The remainder is held in bonds, and it can also hold a maximum of 7 percent of its investments in real estate.

Slyngstad said on Friday that the fund is in “no rush” to lift its stock portion to 70 percent, saying the process could take “years.”

Weighed down by negative interest rates over the past few years, the government last year lowered its expected real return target to 3 percent from 4 percent. A slump in crude prices also forced to the government to make its first ever withdrawals in 2016, but those have now ended. Stoked by a recovery in oil prices and rising petroleum income, the government in June made its first deposit to the fund since 2015.

Inflows to the fund rose to 12 billion kroner in the third quarter.

©2018 Bloomberg L.P.