April 30, 2014 9:26 am

Norway oil fund loses on Russia government bond holdings

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Norway’s oil fund lost 10 per cent on its holdings of Russian government bonds in the first quarter as the economic impact from the Ukraine crisis hit the world’s biggest sovereign wealth fund.

The $860bn oil fund has been increasing its holding of Russian debt in recent months ahead of its inclusion in the fund’s strategic reference portfolio at the end of the first quarter.

“We are a large investor and a long-term investor so even with geopolitically difficult situations, our starting point is to observe and to see if we need to change our view on the risk of our positions rather than changing our positions themselves,” Yngve Slyngstad, the fund’s chief executive, told the Financial Times.

He added that normally the fund seeks to be a contrarian investor in times of stress by seeking to buy equities and bonds as others sell. But on Russia, “geopolitical risk is not a natural situation for us to be a contrarian investor”, he said.

Norway’s oil fund is one of the world’s biggest investors, owning on average 1.3 per cent of all listed companies globally and its moves are closely watched. Mr Slyngstad said earlier this month that the fund was monitoring the risk of its Russian investments closely amid increasing economic sanctions from the US and EU against Moscow.

The fund has bought Russian government debt over the past two years to reach a total of NKr24bn at the end of 2013. Its Russian shareholdings amount to NKr22bn, and together the two had only small fluctuations in the first quarter falling slightly due to currency effects, Mr Slyngstad said.

The news on the fund’s Russian holdings came as it reported it had made a 1.7 per cent return in total in the first quarter. Fixed income returned 2 per cent, equities 1.5 per cent and property 2 per cent.

That followed a stellar 2013 when the oil fund returned 15.9 per cent, its second-best performance ever in its 18-year history.

The real interest may come in some of its individual investments in the quarter. Vodafone, which was the fund’s fifth biggest investment in the fourth quarter and its best-performing stock in all of 2013, is now no longer in the top 10, meaning its stake has fallen from NKr24.6bn to at least under NKr19.3bn in three months.

In fixed income, the oil fund cut its holding of German government debt by about a fifth from NKr97bn to NKr78bn while increasing its holdings in Brazilian sovereign bonds from less than NKr31bn to NKr41bn.

The first three months of this year marked the first time since the second quarter of 2012 that the fund’s fixed income investments outperformed its equity portfolio. The fund turned a net seller of equities for the first time in its history in the fourth quarter due to rebalancing rules.

The fund held 37.7 per cent of its assets in bonds at the end of the first quarter and 61.1 per cent in equities, compared with 35.5 per cent and 63.6 per cent at the end of September.

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