NORWAY – Investments in Norway's Government Pension Fund Global produced the second-highest return in its 15-year history in 2012, while the giant fund embarked on a shift in geographical focus away from Europe.

In its 2012 report, the pension fund posted a return of 13.4%, up from a loss of 2.5% in 2011.

The fund described 2012 as the best year since its record 26% return in 2009.

Yngve Slyngstad, chief executive at Norges Bank Investment Management (NBIM), which manages the fund, said: "The fund's performance reflects development in global financial markets during 2012."

Equities returned 18.1%, up from the previous year's loss of 8.8%.

NBIM noted that world stock markets had risen significantly last year, with particularly high returns seen in the second half, partly because of European Central Bank action.

Fixed income returned 6.7%, slightly down from 2011's 7%, while property returned 5.8%, up from the 4.4% loss suffered a year before.

The Government Pension Fund Global said it had already carried out much of the strategy change announced last March, spreading the geographical allocation of assets more broadly.

For equities, the geographical allocation is now based on total market value, while government bond investments are allocated by country according to the size of its overall output.

In addition to these changes, nine emerging market currencies have been approved for fixed income investments.

"The change in strategy is the most substantial since the increase in the fund's equity allocation to 60%," Slyngstad said.

"While in 2011 the fund invested NOK150bn (€20.2bn) of the year's capital transfers in European equities, in 2012, the fund invested nearly an equivalent amount in emerging bond markets."

During the year, the share of the fund invested in Europe was reduced to 48% from 53%, he said.

"The proportion will eventually drop to about 40% as we boost investments in other regions, especially in emerging markets," he said.

Management costs fell to 0.06% of the fund's capital in 2012, and risk management and active ownership were strengthened, according to Slyngstad.

Investment strategy also became more transparent he said, adding: "We will continue in this direction in the years to come."

The total value of the fund rose to NOK3.8trn at the end of 2012, up from NOK3.3trn a year earlier.

The return on investments was NOK447bn, while capital transfers during the year totalled NOK276bn.

The Norwegian krone's strength on the foreign exchanges wiped NOK220bn off the value of the fund.