Norway oil fund makes big move from bonds to stocks

By Richard Milne in Oslo

April 29 (FT) — Norway’s oil fund has reduced its bond holdings to their lowest ever level as the worlds largest sovereign wealth fund signals its discomfort with the effects of western central banks money printing.

The fund held just 36.7 per cent of its $726bn assets in bonds at the end of the first quarter, the lowest proportion since it first received money in 1996. Its equity holdings were close to a record high, accounting for 62.4 per cent of the total.

Yngve Slyngstad, the funds chief executive, told the Financial Times there had been a significant change in rhetoric away from its previous comments that it was comfortable with a high level of equity holdings.

Now it is that we are not so comfortable with the low returns in the bond portfolio. It is not enthusiasm for the equity market but a lack of enthusiasm for the bond market, he said.

The worlds biggest sovereign wealth fund by some distance, Norways oil fund has for some time been concerned about the low level of government bond yields and what that will mean for fixed income return.

But Norges Bank Investment Management, as it is also known, is reluctant to comment about money printing, known as quantitative easing, by the US Federal Reserve, Bank of England or Bank of Japan as the fund is part of the Norwegian central bank.

Still, Mr Slyngstad said unconventional actions were riskier than normal measures, signalling his unease. Unconventional in this context means untried. Things that are untried have a different risk profile than things that have been tried, he added.

The fund has been shifting both its bond and equity holdings away from dollar, yen, euro and sterling assets to those of emerging markets . But the fund is noticeably more positive on US Treasuries than other western government bonds with Mr Slyngstad saying they serve [a] double purpose of being a haven and highly liquid.

Mr Slyngstad said the fund could take several courses of action to reduce the risk of a sharp fall in bond prices, including buying real assets such as property and diversifying into new currencies. It has also reduced the average duration of its bond holdings from about six to five years.

His comments came as the fund delivered its biggest ever quarterly increase in its market value of NKr366bn. It posted a 5.4 per cent overall return with equities gaining 8.3 per cent and fixed income just 1.1 per cent. Apple, Santander and BHP Billiton were its worst-performing investments while BlackRock, Nestl and Novartis were the best. The oil fund also formally unveiled its plans to become a more active investor , as first revealed by the Financial Times. Mr Slyngstad has joined the nomination committee of Swedish truckmaker Volvo , the first time the fund has formally participated in the selection of board directors.