Norway’s sovereign wealth fund ended the second quarter of this year with a year-to-date return of 8.6%, it was revealed today, but details published show gains were much weaker in the second quarter than the first, as well as overall underperformance by the fund’s manager.
Norges Bank Investment Management (NBIM), which manages the Government Pension Fund Global (GPFG), announced its first-half results this morning at Arendalsuka, the annual debating event held in the southern Norwegian town of Arendal.
It said the 8.6% return, equivalent to NOK1.48trn (€126bn), had increased the GPFG’s value to NOK17.74trn by the end of June. However, since then, the fund has grown to NOK18.06trn, according to today’s figure on the NBIM home page.
In the second quarter alone, NBIM produced a return of just 2.12% overall, according to the interim report published today – compared with the 6.33% first-quarter return.
Nicolai Tangen, NBIM’s chief executive officer, said: “The equity investments gave a very strong return in the first half of the year.”
“The result was mainly driven by the technology stocks, due to increased demand for new solutions in artificial intelligence,” he said.
While equities – which made up 72% of the fund at the end of June – returned 12%, the fund’s three other asset classes made losses in the period.
Fixed income investments ended with a return of -1% with unlisted real estate contributing the same degree of negative hit. Unlisted renewable energy infrastructure – the newest asset class which is still small relative to the fund — contributed a -18% return.
Within equities, NBIM said its strongest returns had been from the technology, financials and healthcare sectors, while stocks in the basic materials sector had produced the weakest returns.
“Technology companies delivered a very strong return for the period of 27.9%. The sector benefited from strong demand for new AI solutions from the biggest internet and software companies and their semiconductor suppliers,” the sovereign wealth fund manager said.
Commenting on the negative fixed income return, NBIM said inflation had slowed more quickly than expected towards the end of 2023, leading to expectations of a substantial easing of monetary policy in 2024.
Regarding unlisted real estate, NBIM said that its investments were largely in office, retail and logistics properties.
“The negative return on unlisted real estate was driven mainly by investments in the US office sector. Values here were negatively affected by higher vacancy and a persistently high policy rate,” it said, adding that there had also been little activity in the market during the period, making property valuations difficult.
Meanwhile, the value of NBIM’s investments in unlisted renewable energy infrastructure – which so far comprise just 0.1% of the GPFG – was adversely affected in the first half by a higher cost of capital, NBIM said.
The manager also revealed that the GPFG’s return in the first half had been 0.04 of a percentage point less than the return on the benchmark index – amounting to a NOK5bn loss compared with the index.
Explaining this underperformance, NBIM said its equity management had made a positive contribution of 0.21 of a percentage point, with fixed income management contributing 0.04 of a percentage point, but that investments in real estate had delivered the most negative contribution to the relative return for the first half, measured against the equities and bonds sold to finance those investments.
Unlisted property made a contribution of -0.08 of a percentage point, mainly due to the US office sector, while listed property contributed a -0.12 of a percentage point to the relative return, NBIM said, adding that renewable energy infrastructure investments had also made a slight negative contribution.
NBIM also announced today that it would now update its holdings list half-yearly as opposed to publishing the data once a year.
“We are already the world’s most transparent fund, but now we are increasing transparency even further,” Tangen said.
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