Norges: banks the key stock

● The world’s biggest owner of listed equities, Norway’s $1.3-trillion (R18.5-trillion) wealth fund, says financial firms have displaced tech stocks as the main drivers of returns.

Norges Bank Investment Management, which owns about 1.5% of global stocks, beat its benchmark index in the first quarter, and also outperformed the MSCI World Index.

“Over time, and especially last year, it was technology and green stocks” that drove returns, said Trond Grande, the fund’s deputy CEO. “What we’ve seen in the first quarter has been a bit different”, with the best returns coming from finance and energy.

For finance, “we should see this in the context of rising long rates”, which means banks can “lend at higher margins,” Grande said.

Financial stocks make up 14.6% of the fund’s investments. JPMorgan Chase & Co is its biggest bank holding, worth about $3.5bn. The investor owns roughly $2.9bn of Bank of America and $2.5bn in UBS Group. Its exposure to the financial sector last year delivered a loss of almost $12bn.

The rise in interest rates that Grande said is behind the financial industry’s outperformance comes amid speculation that inflation might be making a comeback, fed in part by record stimulus packages in the US and Europe.

Asked whether he’s worried about inflation, Grande referred to it as a “ghost”. The “important” issue, he said, is the extent to which a return of inflation might be “unexpected and strong”, in which case investors would have to put up with “some volatility”.

“In the long run, equities are an asset class that provides some protection against inflation,” Grande said.

The fund’s equity portfolio returned 6.6% last quarter. Bonds lost 3.2%, and real estate was up 1.4%. Overall, it generated a 4% return. Rising raw material and oil prices propped up the fund’s portfolio of energy stocks, Grande said.

But it’s now important “to be prepared for the fact that things can turn, and turn quickly”, he said.

To prepare itself for the future, the fund has said it wants to be a global leader in sustainable investing.

That includes delving deeper into an asset class it only recently won political approval to start buying: renewable energy infrastructure.

After a debut purchase earlier this year, Grande said it is not possible to predict how soon the entire $14bn set aside for such deals will be invested.

“These assets tend to arrive in clusters, and not that often,” he said.