The Norwegian sovereign wealth fund (formally, the Government Pension Fund of Norway) was established in 1990 to invest the surplus revenues of the Norwegian petroleum industry. With over $1 trillion in assets, heavily allocated towards equities, it currently owns about 1.3% of global stocks.
The Fund has undergone a number of changes recently, including raising equity holdings to 70%, eliminating holdings of emerging-market debt, and initiating divestment from oil-related stocks. (That may seem ironic, given the Fund’s origins in oil revenues, but it is probably both politically and economically sensible.)
Since 2012, the Fund has been structured to give greater weighting to European stocks than to other developed-market stocks (on the basis of Norway’s greater trade exposure to European companies). That means that it has owned fewer U.S. stocks than it would if it were structured purely on the basis of market capitalization. Last year, the Norwegian government asked the Fund’s managers to review this allocation, and two weeks ago, their preliminary report called for a shift away from the European overweight and to be adjusted towards market weights.
European stocks have underperformed the U.S. for some time, and the sector composition of European and U.S. markets has given the Fund less exposure to big, transformative secular growth themes, particularly in technology and communications.
The managers’ formal recommendations will come early next year, and that will probably result in a gradual influx of about $100 billion into U.S. stocks.
Investment implications: A shift toward market-weight allocations to global stock markets by the Government Pension Fund of Norway will gradually and incrementally increase demand for U.S. stocks — particularly for big-cap tech leaders.
