The head of the world’s largest sovereign wealth fund has warned investors towards complacency and mentioned they face troublesome years ahead, as Norway’s oil fund swung to its greatest ever greenback loss within the first half of 2022.
“Markets don’t go down in a straight line, and I’m worried that we can have tough times for an extended period,” Nicolai Tangen, the fund’s chief government, mentioned in an interview with the Financial Times. “There is a risk that we haven’t seen the worst yet.”
The results of reversing financial stimulus and low rates of interest from the 2008 monetary disaster by to the pandemic are so large that “I’m more in the several years [of difficult markets] camp. I don’t think this is done overnight,” he added.
July’s market rally had inspired some investors, however was prone to be a false daybreak, he mentioned.
“The market has got one function, and that is trying to steal your money every day. The best way the market could steal your money in July was to rally, so that’s what it did,” Tangen mentioned.
The $1.2tn fund suffered a 14.4 per cent loss, or the equal of $174bn, within the first half of the yr, pushed by a sell-off throughout all sectors besides vitality, it mentioned on Wednesday. It had gained 14.5 per cent throughout 2021 as markets soared following the reopening of economies around the globe.
“The fund is now so big that the sums become very big . . . But we are a long-term investor so we have to tolerate these kinds of swings,” Tangen mentioned at an earlier press convention. “What was unusual this time is that we lost money both in stocks and bonds.”
The equity portfolio of Norges Bank Investment Management, which manages the fund, was hit significantly arduous within the first half, shedding 17 per cent, whereas mounted revenue was down 9.3 per cent. Facebook mother or father Meta was the only greatest contributor to NBIM’s stock market losses within the first half.
The fund’s investments in unlisted actual property delivered a 7.1 per cent achieve however they make up solely 3 per cent of the fund’s general portfolio. Its renewable vitality infrastructure investments fell 13.3 per cent.
The sovereign wealth fund, which owns the equal of about 1.5 per cent of each listed firm on this planet, had inflows of NKr356bn ($36.8bn) within the first half of 2022, whereas currency actions bumped up the fund’s worth by NKr642bn. The MSCI All-World index of world shares is down 14 per cent up to now this yr. The fund mentioned it had outperformed its personal benchmark by 1.14* proportion factors.
Tangen had beforehand warned that Russia’s invasion of Ukraine would make inflation issues worse. In an interview with the FT in January, he additionally described himself as “the team leader for team permanent” within the debate on how lengthy excessive inflation may final.
On Wednesday Tangen reiterated this view. “There is a risk that inflation will be tougher to get down than many think,” he mentioned. “Inflation feeds on itself.”
The oil fund was arrange in 1996 to take a position the proceeds of Norway’s oil and fuel business and is housed in its central financial institution. It is a quasi-index fund, with its overarching funding mandate set by the Ministry of Finance whereas materials adjustments to how the fund invests have to be authorized by parliament.
*This has been corrected from 1.14 foundation factors