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​Norway’s €944bn sovereign fund recommends shift out of European equities

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Norway’s giant sovereign wealth fund could shift its equities asset allocation towards North American stocks and away from European investments, if the country’s Finance Ministry follows a recommendation from the NOK9.4trn (€944bn) Government Pension Fund Global’s (GPFG) manager.

In a letter to the Ministry, Norges Bank Investment Management (NBIM) said the geographical distribution of the fund’s equity investments should be adjusted further towards float-adjusted market weights by increasing the weight of equities in North America and reducing the weight in European developed markets.

The letter was one of two published by NBIM yesterday in response to the Ministry’s request last November for an assessment of the fund’s equity benchmarks.

NBIM analysed arguments concerning whether the fund’s guiding benchmark index for equities should be closer to market-cap weighted indices.

“The geographical distribution of the fund’s benchmark index has been adjusted over time towards float-adjusted market weights, but still has a much higher weight of equities in European developed markets and a correspondingly lower weight of North American equities,” Jon Nicolaisen, deputy governor of Norges Bank, and Yngve Slyngstad, chief executive of NBIM, wrote in the letter.

Norges Bank

“The fund may have characteristics that support a geographical distribution that departs to some extent from float-adjusted market weights,” the pair said.

“We are of the opinion, however, that the geographical distribution should be adjusted further towards float-adjusted market weights by increasing the weight of equities in North America and reducing the weight of equities in European developed markets.”

Any shift in geographical distribution within the GPFG’s equity portfolio could have a major impact on financial markets and companies, since it owns an average stake of around 1.5% in the nearly 8,000 companies around the world in its benchmark index.

The numbers

If Norges Bank’s new advice is followed, the scope for change is considerable.

At the end of 2018, North American equities – primarily US equities – made up 40.2% of the equities benchmark, below the 48.6% of the FTSE index at full market weights they represented, and well below their 56.5% weighting in the FTSE float-adjusted with ethical exclusions, Norges Bank figures showed.

European developed markets equities, on the other hand, made up 33.7% of the sovereign fund’s equity benchmark, far exceeding the 19.4% at full market weights and 19% float-adjusted.

If the GPFG’s equity portfolio is shifted to float-adjusted weights, NBIM figures indicate that the fund could move roughly €100bn to North American equities at the expense of European stocks, based on the GPFG’s asset allocation on 30 June 2019.




Finance minister Siv Jensen said the advice from the bank was only one contribution to her department’s review of the GPFG’s equity benchmark, and that any resulting changes would happen only slowly.

Siv Jensen

Norway’s finance minister, Siv Jesen, speaks at a press conference in Oslo earlier this year

“Equities make up the majority of the investments in the GPFG and it is important that the framework for these investments is appropriate and updated,” Jensen said, adding that the ministry would consider towards next spring whether there was any need to adjust the equity benchmark.

The review would be broad, she said, with index provider MSCI also tasked with preparing a report containing analyses of equity market trends and consequences for risk and return of different geographical compositions.

“Implementation of any changes in the benchmark index will be gradually over time,” the minister said.

In a separate letter, also published yesterday, NBIM recommended no changes to the method and rules for the composition of its emerging markets benchmark.

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