Norway’s sovereign wealth fund has seen its portfolio underperform the benchmark by 1 percentage point over the last decade, as a result of its decision to exclude more than 60 companies.

Norges Bank Investment Management (NBIM) said that, at the end of 2015, it excluded 65 companies from its investment universe, in line with the Ministry of Finance’s mandate for the NOK7.5trn (€796bn) Government Pension Fund Global.

The decision to exclude companies for violations of international treaties, which should not be confused with NBIM’s risk-based divestment of firms, saw the fund underperform its benchmark by 1.17 percentage points, according to the manager’s inaugural performance and risk report for 2015.

NBIM said that, of the 65 companies excluded, 54 would have been represented in its benchmark index, with a combined market value of NOK127bn.

“When companies are excluded,” the report states, “this alters the risk and return characteristics of the index, as remaining companies are assigned a higher weight. Since 2006, these exclusions have had a cumulative performance impact of -1.17 percentage points.”

Excluding tobacco firms – at NOK 61.8bn, accounting for nearly half of the excluded companies’ market value – caused NBIM to lose 0.68 percentage points in return from 2006 to 2015, followed by the aerospace and defence sectors.

Notably, the exclusion of mining companies boosted returns by 0.04 percentage points, while the exclusion of companies within the industrial metals sector boosted returns by 0.01 percentage points.

NBIM said the impact of excluding certain companies within the chemicals sector, and construction and materials sector, was flat.

The fund, Europe’s largest asset owner, recently announced an annual return of 2.7%, outperforming its benchmark by 0.5%.

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