The giant fund’s 3.4% investment loss undershot its market benchmark by 0.11 percentage points, the fund said in its half-year report, published on 18 August. This was chiefly due to the management of its comparatively small real estate portfolio — worth $49bn out of a fund worth 10,400 billion Norwegian kroner, or $1.18tn.
The real estate portfolio fell in value by 8.7% during the six months. The fund holds around a third of its $49bn property portfolio in listed real estate companies, which plunged in value by a fifth. It also recorded mark-downs in the value of its off-market property holdings, though these were unrealised.
The fall in value for its real-estate portfolio may have impacted particularly hard on the relative performance figures, because the fund measures its performance by reference to what it would have made had it kept the money in stocks.
By contrast, the Government Pension Fund said that while its much-larger equity portfolio — worth $819bn at 30 June — lost 6.8% in the first half, this was actually a 0.16-percentage-point outperformance of its target, thanks to its holdings in the finance and healthcare sectors.
However, an overallocation to value stocks — stocks picked because they look cheap, as opposed to because they seem likely to go up in value — hurt the fund. Value stocks have seriously underperformed for several years, and many fund managers are anxious to correctly pinpoint the moment when this trend may reverse.
The sovereign wealth fund’s bondholdings recorded gains for the period, up 5.1% as governments around the world slashed interest rates to tackle the pandemic. Interest rates — and hence bond yields — move inversely to bond prices.
The Norwegian fund profited by a decision to hold a larger position in government bonds, and a smaller position in corporate bonds, than the makeup of global bond benchmarks would suggest. Its bond managers outperformed their target by 0.14 percentage points during the half-year.
Tronde Grande, the deputy chief executive of Norges Bank Investment Management, which oversees the fund, said in a statement: “Even though markets recovered well in the second quarter, we are still witnessing considerable uncertainty.”
Source: Private Equity News
