The world’s largest sovereign wealth fund, which is in the process of increasing its equity exposure to 70% while reducing fixed income allocation to 25%, announced the changes in a letter to its only shareholder, Norway’s ministry of finance.
In the letter, the fund’s chief executive Yngve Slyngstad argues that investing in a diversified bond portfolio does little to reduce risk “for an investor with 70% of his investments in an internationally diversified equity portfolio”.
Euro, dollar and sterling
The fund, which has NOK7,66trn (£758bn, $983bn, €828bn) in assets under management, therefore proposes the benchmark index for its bond portfolio should in future consist only of nominal government bonds issued in dollars, euros and sterling.
At the moment, the fund’s fixed income benchmark consists of 23 currencies, while 30% of the its bond portfolio is invested in corporate bonds.
While off-benchmark positions continue to be allowed under the proposal, “investments in corporate bonds and in other currencies [than euro, dollar and sterling] will be reduced”, a spokesperson told our sister publication Expert Investor.
The Norwegian parliament will debate the oil fund’s proposal before a final decision is taken by the country’s finance ministry next year.