The oil and gas companies were a disaster in the first half of the year for the Petroleum Fund, while the technology shares were the big winners.
KVADRATUREN (Nettavisen Økonomi): The first quarter was cruel on the stock exchanges, and The Petroleum Fund went on a rampage during the incipient corona crisis.
Second quarter, on the other hand, very good in the world’s stock markets. The world index MSCI was up 23.6 percent, US S&P 500 25.5 percent.
However, this was not enough to prevent the Petroleum Fund – the Government Pension Fund Global – from receiving a return of -3.4 per cent in the first half of 2020, corresponding to NOK -188 billion. The Petroleum Fund’s equity return in the second quarter was 18.1 per cent.
The Petroleum Fund has had one very good return on some of the world’s technology giants, like Amazon, which contributed most to the returns in the first half. Microsoft and Apple have been two other success stories for the fund in the first six months of the year.
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Lost a third
On the other hand, the fund lost a full 33.1 percent on oil. and gas shares and 20.8 per cent in the financial companies. The large oil slick is due to a sharp fall in oil prices in the first quarter as a result of weak demand for oil and the corona pandemic.
The return on the fund’s equity investments in the first half of the year was negative by 6.8 per cent, while the return on fixed income investments was paradoxically positive by as much as 5.1 per cent.
This is because there will be price gains on fixed income investments when interest rates fall. But as much as 22 percent of the fixed income portfolio of 2,870 billion has a negative interest rate. The average interest rate here is -0.3 percent.
For fixed income investments as a whole, the average interest rate is 1 per cent. Should the interest rate level rise by 1 percentage point, it will result in a price slump of between NOK 700 and 800 billion.
Almost 700 billion
And the krone weakened against several of the major currencies during the first six months of the year. The weak krone contributed to increasing the Oil Fund’s value by NOK 672 billion. As the fund invests all its assets abroad, the values of the investments increase when the krone weakens.
At the end of June, the Petroleum Fund had a value of NOK 10,400 billion. 69.6 per cent of the funds were invested in shares, close to the limit of 70 per cent. In the first half of the year, NOK 167 billion was withdrawn from the fund. It is very much, but due to the corona crisis and all the support packages.
Since the start in 1998, the Petroleum Fund has had an annual net return of 3.9 per cent, when inflation has been deducted. There is a good deal above the so-called fiscal rule, which indicates an annual withdrawal of the fund of up to 3 percent. The average annual return since 1 January 1998 is 5.8 per cent.
– There were large fluctuations in the stock market during the period. The year started optimistically, but the mood in the market changed abruptly when the coronavirus began to spread globally. However, the sharp fall in the stock market in the first quarter was slowed down by a massive monetary and fiscal policy response, says Deputy CEO Trond Grande of Norges Bank Investment Management (NBIM).
– Despite the fact that the markets recovered well in the second quarter, we still see considerable uncertainty, says Grande.
Still uncertain
He chaired Tuesday’s press conference. Grande said at a press conference on Tuesday that the unrest surrounding the appointment of a new oil fund manager has not created negative reactions among the international partners.
Nicolai Tangen is going according to plan take over the leadership role on 1 September after Yngve Slyngstad, but the appointment has met with criticism from various political quarters.
The Ministry of Finance, led by Minister of Finance Jan Tore Sanner (H), has ordered a legal assessment of whether they can override the appointment of Nicolai Tangen. But law professor Eivind Smith believes Sanner can not override the appointment of Tangen as the new oil fund manager.
The case is being updated.
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