NORWAY – Holdings of financial companies led the rally within the Norwegian Pension Fund Global’s (NPFG) equity portfolio, posting the strongest returns of all of the NOK3.7trn (€505bn) fund’s stock investments, according to its latest quarterly report.

The 8.1% return by global banking stock is in marked contrast to a 6.1% loss in the second quarter of the year for the fund overseen by Norges Bank Investment Management (NBIM).

However, in contrast with the previous quarter’s -4.6% return on equity, the third quarter’s stock rally – triggered by comments from European Central Bank president Mario Draghi – saw NPFG’s stock portfolio return 6.5%, while fixed income holdings grew by 2.2%.

Commenting on the results, NBIM chief executive Yngve Slyngstad said: “The result was largely driven by a rally in global stock markets. Stocks gained the most in Europe, where the fund has about half of its shareholdings.”

Despite the equity rally, the fund’s 4.7% overall return nonetheless slightly underperformed its benchmark, and sovereign bond holdings – accounting for more than half of fixed income investments – returned only 1.4%, the lowest of all asset classes.

However, its relative equity portfolio return was 0.1% above its benchmark.

The telecommunications and consumer goods sectors were the fund’s best performing stock sectors compared with the benchmark index, while investments in oil and gas shares and financial stocks performed the worst.

Telecoms stock, accounting for more than 4% of equity holdings, returned 5.9%, and consumer goods – nearly 13% of the overall stock investments – returned 5.1%.

Sorted by country, stockholdings in the US and Sweden performed the best against the benchmark, while equities in the UK and Germany performed the worst, the fund said.

This was despite German chemicals giant BASF, counting among the strongest single returns of all holdings, being up 22% over the quarter, alongside strong returns from Apple and search engine Google.

The quarter also saw NBIM continuing a strategic asset allocation shift, first announced earlier this year, that will see NPFG invest based on GDP-weighted indices and increase exposure to emerging market debt.

The fund in the quarter also boosted its investments in US and Japanese government bonds and increased its holdings of government bonds issued in the currencies of emerging economies such as South Korea, Mexico and Russia, it said.

It added that exposure to Spanish and French government debt fell – with its holdings in the latter sovereign now valued at NOK58bn, down from NOK70bn at the end of June.

Since the end of December, the fund has reduced its exposure to euro-denominated fixed income from nearly 40% of the total portfolio to 32.9%.

Exposure to pound sterling debt fell similarly, while the increased yen investment now sees bonds denominated in the Japanese currency account for 6.9% of bond holdings, up from 5% in nine months.