The key facts
- The fund's Q3 loss was 278 billion kroner (26.4 billion euros), with bond returns at −3.5%
- Overall return was −0.5%; equities returned +0.5%, real estate +0.4%, renewable energy infrastructure +7.5%
- At the end of September the fund was worth 22,014 billion kroner (2.09 trillion euros); adjusted for exchange rates and inflows, it lost 670 billion kroner
Loss amid rising rates
Norway's sovereign fund — the world's largest, with assets of about 2.1 trillion euros — on Thursday, October 22, reported an investment loss of 278 billion kroner (26.4 billion euros) for the third quarter. The fund's manager, Norges Bank Investment Management (NBIM), attributed the result to rising interest rates. 'The fund's overall return was close to zero and ended the quarter slightly negative, as rising interest rates worsened the performance of our fixed-income investments,' said the fund's deputy CEO, Trond Grande.
Bond sell-off
Fixed-income investments, which account for just over a quarter of the portfolio, returned −3.5%. About 70% of these investments are in government bonds. In the third quarter, the global bond market experienced a large-scale sell-off: government bond yields rose to levels unseen since the financial crisis amid growing concerns over rising US and EU public debt. At the same time, central banks, including the US Federal Reserve and the ECB, were raising key rates amid rising inflation in the US and the eurozone. Rising market rates typically reduce the prices of already issued bonds, since new issues offer higher yields.
Structure of results and portfolio
The fund's total investment return was −0.5%. Equities returned +0.5% with significant differences between sectors: 'Energy stocks rose the most, while rate-sensitive sectors such as utilities and real estate declined,' Grande noted. Real estate investments returned 0.4%, and investments in non-listed renewable energy infrastructure returned 7.5%. At the end of September, the fund was worth 22,014 billion kroner (2.09 trillion euros): 72.1% equities, 25.8% bonds, and the rest in non-listed real estate and renewable energy infrastructure. Adjusted for exchange-rate fluctuations and inflows of new funds, the fund's total value fell by 670 billion kroner (63.6 billion euros) over the quarter.
