(Bloomberg) -- Norway’s $1.8 trillion sovereign wealth fund returned 4.4%, or $76.4 billion, in the third quarter after broad equity gains on declining interest rates.
Norges Bank Investment Management, the world’s biggest single owner of listed companies, added 4.5% on stocks in the period and 4.2% on fixed-income investments, according to a statement Tuesday. The fund’s total return was 0.1 percentage points lower than that of the benchmark against which it measures itself, reflecting underperformance by both internal and external equity managers during the quarter, Deputy Chief Executive Officer Trond Grande said in an interview.
US equities advanced in the third quarter supported by improved economic data, including softer inflation figures. Widespread anticipation that the Federal Reserve would start easing monetary policy also spurred a shift out of big-tech stocks and into those likely to benefit from lower interest rates and a growing economy.
While investors will be closely following the outcome of the US election, “we don’t see that as a major kind of event for markets either way,” Grande said. “We have to be mindful, at least for us as investors, that we now have a fund that is up 13.4% year to date. Our equities are up almost 18%. So it’s a really, really good year. I don’t think we should necessarily hope for that much for the rest of the year.”
The underperfomance of the equity managers relative to the benchmark in the three months through August is a change compared to the first two quarters, Grande said. Year-to-date external managers are ahead of the benchmark, while their counterparts internally are at break-even, he said.
“Whenever you have draw-downs you want to reassess and look at your process,” the executive said. “It was kind of broad based and that makes you think that it’s something systematic. But we haven’t really uncovered that in our analysis. It seems to be more idiosyncratic.”
For the second quarter in a row, real estate weighed on returns. The fund gained 0.8% on its unlisted real estate holdings and 10.8% on unlisted renewable-energy infrastructure.
Created in the 1990s to invest Norway’s oil and gas revenues abroad, the fund is largely an index tracker. It invests according to a strict mandate from the Finance Ministry, measuring itself against a bespoke benchmark index based on the FTSE Global All Cap Index for equities and Bloomberg Barclays indexes for fixed income. The bulk of NBIM’s capital is in publicly listed equities.
--With assistance from Stephen Treloar.
(Updates with Deputy CEO starting in second paragraph.)
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