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The $1 Trillion Wealth Fund Defying Markets

Norway

Norway’s $1 trillion-dollar sovereign wealth fund doubled its return on investment last year, and this year, it’s not shying away from the markets--even when many are giving up on the bull run.

In fact, the fund is wholeheartedly embracing the spike in volatility, with plans to add some $40 billion in stocks to its portfolio.

After all, the fund beat its own benchmark and it’s riding high on massive $130 billion in winnings.

First, let’s look at last year’s success story:

After sailing past the $1 trillion mark in assets, the Norwegian fund made an annual return of 1,028 billion kroner ($131 billion). That’s more than it’s ever made in its two-decade history. Its return jumped from 6.9 percent in 2016 to 13.7 percent in 2017.

“The fund’s cumulative return since inception has passed 4,000 billion Norwegian crowns ($511.18 billion). One out of four crowns of return was generated in 2017, after a very strong year for the fund,” CEO Yngve Slyngstad said in a statement. “Again, our equity investments returned strongest with a return close to 20 percent.”

Equity holdings were the big movers here. Of the nearly 14 percent return for the fund, equities accounted for almost 20 percent, compared to just 3 percent for bonds and 8 percent for real estate.

The fund currently invests 66.6 percent of its money in equities and is planning to increase this to 70 percent by next year.

It already owns 1.4 percent of all listed stocks in the world and is invested in more than 9,000 companies.

And like Warren Buffett, it’s also got a lot of love for Apple. The fund has a 0.9 percent stake in the U.S. tech behemoth, which has a market value of more than $8 billion. Apple recorded a share price rise of 46 percent last year. Related: The Road To Steel Recovery Is Paved By Heavy Tariffs

Another favorite is Chinese tech darling Tencent, which investors are loving for its explosive exposure to China’s growing tech infrastructure.

Microsoft and Amazon also feature high on Norway’s list, but it’s heavier on Microsoft, in which owns about $1.4 billion more than it does in Amazon.

Stocks were the most successful investment in the fund's portfolio last year, with a 19.4 percent return, while return on real estate hit 7.5 percent and its fixed income investments with just 3.3 percent.

But it wasn’t all roses last year, though. The fund’s worst-performing investments were General Electric, which continues to disappoint, energy giant Exxon Mobil and Israeli healthcare company Teva Pharmaceutical Industries.

This may have started out as a wealth fund fed by oil; but getting out of oil and gas stocks has been its key strategy focus of late. These stocks were among the fund’s worst performers last year.

Now the fund is slashing stakes in US gun makers, too—but it started last year, before the gun issue became toxic following the latest school shooting in Florida. During the past year, the Norwegian fund has cut its stake in American Outdoor Brands by almost 90 percent, according to the Financial Times.

In the meantime, Norges Bank Investment Management, which controls the fund, is warning that we could see "substantial fluctuations in the value of the fund" because of the increase of the amount of stocks in the fund.

CEO Yngve Slyngstad said he was prepared for fluctuations in the fund's value that could exceed $115 billion.

Norwegians are getting richer thanks to the fund’s new strategy, but will they be able to handle the volatility, fully exposed?

By Jan Bauer for Safehaven.com 

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