Norway s sovereign wealth fund suffers 8.8bn loss

(MENAFN- Arab News) OSLO: Norway's $870 billion sovereign wealth fund reported its first quarterly loss in three years onWednesday hauled down by sliding bond and stock markets.
The world's richest sovereign wealth fund owns about 1.3 percent of all global equities and has massive government and corporate bond holdings so its performance and decisions are closely followed by investors across the world.
It lost 73 billion Norwegian crowns ($8.8 billion) in the second quarter representing a negative return of about 1 percent on its investments. That was the first drop the fund had seen since the same period of 2012 and a dramatic reversal from the record 401 billion crown gain in January-March this year.
The value of the fund's bond holdings which account for about a third of its portfolio fell by 2.2 percent in the April-June quarter as yields increased in its main markets including the United States Europe and Japan.
Its equities which make up the bulk of its investments lost 0.2 percent hit by a decline in US stocks which outweighed gains in Asia and flat returns in Europe.
"The fund's results during the last several years have come from a rise in stock markets and the simultaneous fall in long-term yields in fact in all yields" said Trond Grande deputy CEO of the fund which invests Norway's oil and gas wealth.
Many investors expect the US Federal Reserve to start raising interest rates later this year which would push yields higher.
"It would very quickly hit the value of our bonds ... In the short run it would necessarily have a negative development for the fund" Grande said adding that coupon payments made from bonds could be reinvested at a higher yield if rates rose.
He declined to comment on his expectations for the global economy or on the investment plans of the fund which holds $167000 for each of Norway's 5.2 million people.
The value of the wealth fund's real estate investments which account for just a fraction of its portfolio rose 2 percent in the second quarter.
A strengthening of the Norwegian crown reduced the value of the fund by a further 53 billion crowns in the period but this is not counted as part of its negative return as currency movements are expected to even out over time.
Currency movements had led to an increase of 175 billion crowns in the previous quarter for the fund which makes its investments in foreign currencies but assesses its own size in crowns.
The fund has cut its share of bond investments to 34.5 percent of its portfolio from 35.3 percent at the end of March.
Its equity investments have risen to 62.8 percent from 62.5 percent; while its property holdings have increased to 2.7 percent from 2.3 percent.