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Norway's wealth fund not adjusting portfolio to virus outbreak for now

Oslo 

NORWAY'S sovereign wealth fund is not planning to adjust its portfolio in response to a wave of global panic triggered by the spread of the novel coronavirus.

Its chief executive officer Yngve Slyngstad said in Oslo on Thursday: "We're a fund with a 30-year horizon that takes it easy when things are turbulent. Of course, we're still monitoring the market fluctuations we're seeing, and they are considerable these days.

"But this is a type of risk that's difficult for us to analyse, and therefore not typically a situation where we go in and act with regard to buying or selling stocks."

He made the comments after the US$1.1 trillion investor unveiled an eye-watering US$180 billion return - its biggest ever - thanks to a rally in global stocks in 2019.

The results capped a year in which the world's biggest wealth fund got the go-ahead to cut its fossil-fuel exposure. It also started the search for a new CEO after Mr Slyngstad made clear he wanted to step back.

For the fund, 2019 will go down in the history books as a pivotal year. Norwegians marvelled as their piggy bank hit a 10 trillion-krone milestone exactly 50 years to the day after their country discovered the oil that would fuel the country's vast wealth.

Mr Slyngstad has said that reaching that milestone made him feel the time was ripe to step back, after 12 years at the helm; he will step down later this year once a successor has been found.

"Norway has gone from oil nation to oil-fund nation," he said at a press conference in Oslo on Thursday. Last year's result is, "without comparison, the largest value increase we've had in a single year". Stocks had a formidable run in the fourth quarter as investors started to trust that global trade tensions between the US and China might be resolved. The MSCI World Index rose 25 per cent during the year.

Since then, markets have been roiled by fears that the outbreak of the new coronavirus in China will disrupt the global economy for an extended period. The week started with a violent sell-off of stocks while corporate bond markets came to a virtual standstill as issuers and investors struggled to predict the fallout of the virus.

The wealth fund's biggest equity investments at the end of 2019 were Apple, Microsoft and Alphabet, while its biggest fixed-income investments were US Treasuries, followed by Japanese and German government bonds.

Norway's wealth fund was set up in the 90s to funnel income from oil and gas into foreign assets, to prevent the domestic economy from overheating and to preserve as much wealth as possible for future generations. Later, a rule was introduced to cap government spending of Norway's oil riches.

Over the years, the fund has gradually adjusted its investment universe. In 2019, it won approval to start cutting some oil stocks from its portfolio, though not to the extent it had hoped. Politicians also tightened a ban on coal investments and decided the fund should dump emerging market bonds.

These changes will be implemented over time, and the fund did not appear to have made any big divestments in those categories last year, according to holdings published on its website.

The fund's meteoric rise was turbo charged after the financial crisis of 2008, when it snapped up all the cheap stocks others had dropped in a panic. But some of its managers have since warned that the growth of the stock portfolio left the fund more exposed to market volatility.

Central bank Governor Oystein Olsen said earlier this month that a financial-crisis style slump could slice 30 per cent off the investor's value. The fund is also entering a new era, as the government transfers less petroleum income. Norway's oil and gas production is expected to grow in the next few years, but by the second half of the decade, it is set to fall. BLOOMBERG