OSLO • As many investors question a global stock market rally that is now in its eighth year, the world's biggest wealth fund is prepared to splurge.
Norway's US$970 billion (S$1.3 trillion) wealth fund has been ordered to raise its stock holdings to 70 per cent from 60 per cent in an effort to boost returns and safeguard the country's oil riches for future generations. Any short-term view on growing risks will play little part, according to Mr Trond Grande, the fund's deputy chief executive.
"We don't have any views on whether the market is priced high or low, whether bonds and stocks are expensive or cheap," he said in an interview after presenting second-quarter returns yesterday.
The decision to add stocks "was made at a strategic level, on a long-term expected excess return that we're willing to take risks to achieve. And Parliament has said that it wishes to spend some time to phase in that increase."
The fund has doubled in value over the past five years and is continually adding risk to its portfolio.
It returned 202 billion kroner (S$34.8 billion) in the second quarter, and 499 billion kroner in the first half, the best on record for the period.
Owning 1.3 per cent of global stocks, the Norwegian fund largely follows indexes but is allowed some active management of its portfolio. It has been expanding more into emerging markets and recently got permission to raise its stock holdings after Norway last year started withdrawing cash from the fund for the first time.
While the investor can look beyond short-term, or even medium-term volatility, it does see potential risks.
Chief executive officer Yngve Slyngstad in April said that the fund had turned a bit "cautious" on stocks. But in practical terms, that means very little.
"It doesn't lead to anything in concrete terms, other than the fact that we're keeping a close eye on the indicators that could indicate whether there's a risk there and what they're saying," Mr Grande said. "Some risk indicators have actually not shown underlying risk - take growth, for example. So you should be a little cautious when the skies are all blue."
The fund held 65.1 per cent in stocks in the quarter, 32.4 per cent in bonds and 2.5 per cent in properties. Its mandate is now to keep about 70 per cent in stocks, 30 per cent in bonds, with about 7 per cent in real estate that's now separate from the main portfolio.
The Finance Ministry is currently working on a plan on how to move the portfolio to 70 per cent and the fund will stick to that, Mr Grande said.
The fund also indicated it can withstand pressure on its balance sheet from government withdrawals. Norway started taking money out of the fund last year to cover budget shortfalls after oil revenue slumped. The government withdrew 16 billion kroner in the second quarter, reaching about 36 billion kroner so far. It has flagged it will take out a little bit above 70 billion kroner.
Norges Bank deputy governor Egil Matsen, who is in charge of oversight of the fund, says it is liquid and can finance new real estate purchases from a steady income stream.