(English) World Biggest Sovereign Fund to Ditch Oil and Gas

Dear PGM Blog reader,

On Friday, November 17, World’s biggest Sovereign Wealth Fund, “Norway’s Sovereign Wealth fund” has told its government it should dump its shares in oil and gas companies, in a move that could have significant consequences for the sector.

INTRODUCTION:

The Norway’s Sovereign Wealth Fund, also known as the Oil Fund or Petroleum Fund, was established in 1990 after a decision by the country’s legislature to counter the effects of the forthcoming decline in income and to smooth out the disruptive effects of highly fluctuating oil prices.

The purpose of the fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, mainly from taxes of companies but also payment for licenses to explore for oil as well as the State’s Direct Financial Interest and dividends from the partly state-owned Statoil.

FACTS ABOUT THE FUND

  • Investments in :
    • 77 COUNTRIES
    • 8,985 Companies
  • 1.3% of listed Companies Worldwide
  • 2.3% of listed Companies in Europe

The fund is investing globally in international equities, fixed income and real estate. The goal is to have well diversified investments that distribute risk and generate the highest possible return within the mandate from the Ministry of Finance.

As at 30 September 2017, the fund has over US$ 1trilion in asset, making it the world’s largest sovereign wealth fund, for which its assets were allocated as follows:

  • 65.9 percent in equities,
  • 31.6 percent in fixed income
  • 2.5 percent in unlisted real estate.

In September 2017 it was worth US$192,307 per Norwegian citizen. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.

Current revenue from the petroleum sector is estimated to be at its peak period and to decline in the future decades.

The fund was built on the back of Norway’s hydrocarbon wealth, and around 300 billion krone (US$36 billion), is invested in oil and gas companies.

PROPOSAL TO DITCH OIL & GAS INVESTMENTS:

The Norwegian central bank (Norges Bank) which runs the country’s sovereign wealth fund – the world’s biggest – has told its government it should dump its shares in oil and gas companies, in a move that could have significant consequences for the sector.

“Therefore, it is the bank’s assessment that the government’s wealth can be made less vulnerable to a permanent drop in oil prices if the Norway’s Sovereign Wealth Fund, is not invested in oil and gas stocks.”

The Norwegian government said it would consider the proposal, but a decision should not be expected until next year and a “thorough assessment” was required.

The Fund’s Oil Investments:

The fund’s biggest oil and gas holding at the end of 2016 was US$5.36 billion in Anglo Dutch firm Shell, followed by US$3.06 billion in ExxonMobil, US$2.04 billion in fellow US oil firm Chevron, US$2.02 billion in the UK’s BP, and US$2.01 billion in France’s Total. It also has shares worth more than US$1 billion in oil services firm Schlumberger and Italy’s Eni.

PGM CAPITAL COMMENTS & ANALYSIS:

Our planet is now approaching 7 billion inhabitants, which means that more and more our concerns are rising regarding the state of pollution, carbon footprint, global warming, rising sea-level, which has become a threat to our life on our planet.

Based on this, it is not surprising that we see the world’s largest sovereign wealth fund managers no longer prepared to take the increasing risk associated with oil and gas assets, which do not have a long-term future.

Norway is already heavily invested in oil and gas resources, so selling the oil fund’s fossil stocks will clearly help reduce our financial carbon risk,” said Truls Gulowsen, head of the group.

Greenpeace Norway welcomed the central bank’s intervention.

Lessons from the Norway Wealth Fund:

Norway’s Sovereign Wealth Fund, said that if the fund did ditch oil and gas stocks, the action could influence other investors.

The breakdown of world’s biggest fund total investment of the fund of:

  • 65.9 percent in equities,
  • 31.6 percent in fixed income
  • 2.5 percent in unlisted real estate.

Might gave us an indication of how a well managed portfolio should be.

It is also good to see that shares of Royal Dutch Shell, is the top holding in the company’s Gas and Oil Portfolio, which is in line with our vision regarding Oil and Gas securities.

We believe that with the fact that we are approaching the final leg of Globalization, in which robots will become key component in the production and distribution of goods, we might see funds like Norway’s Sovereign Wealth Fund to move a portion of their equities into this direction, for which most of the Oil and Gas equities due to their high dividend yield but slow growth will act like income securities.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that; share prices don’t move in a straight line and that Past Performance Is Not Indicative Of Future Results.

Yours sincerely,

Eric Panneflek

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