Oil, iPhones, and Trump: How Norway’s huge sovereign wealth fund made a $53 billion return

A land of wealth.
A land of wealth.
Image: Reuters/Stine Jacobsen
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After a rocky start to 2016, Norway’s $900 billion sovereign wealth fund announced today that it made a return of almost 7% last year (pdf), more than doubling its result the previous year. The unlikely source of this $53 billion windfall? US president Donald Trump. American stocks have been on a tear since Trump was elected, as investors predict tax cuts, deregulation, and other business-friendly policies will boost corporate profits. Just under a quarter of the Norwegian fund’s assets are invested in US stocks.

Last year started off badly for the world’s largest sovereign fund, with global stocks falling by 10% in the first few weeks of 2016. Norway’s government also made its first withdrawal from the fund after 20 years as falling oil prices cut into Norway’s commodity-driven economy.

It’s worth remembering how enormous Norway’s fund is—it owns just over 1% of all stocks in the world, a bond portfolio worth more than $300 billion, and holds considerable real estate investments in New York, London, Paris, and beyond.

The fund’s best investment in 2016 was in oil company Royal Dutch Shell, contributing the most to its overall return. Even as Shell’s profits fell in 2016, it completed a record-breaking takeover of BG Group and with cash to spare to cover shareholder payouts.

The fund’s next-largest return came from mining company Glencore, which rode a commodity price recovery to a spectacular performance in 2016. Glencore returned to profit last year, and investors now believe Trump could give the company a further boost with promises to bring back mining jobs in the US, overturn regulations on coal, and generally relax laws on a host of environmental issues that cost mining companies money.

The fund’s third-largest contributor returns was Apple, which gained 10% in 2016 and has since continued to climb, setting new record highs this year. Investors are optimistic about an upcoming revamp to the iPhone and as well the possibilities that come from the company brings back some of the $230 billion in cash it has stashed abroad (paywall) if Trump follows through on a plan to cut the repatriation tax.

Overall, in 2016 stocks returned 8.7% for the Norwegian fund, compared with a 4.3% gain for bonds and 0.8% for real estate. This is a encouraging mix, since the fund plans to increase its share of equity holdings this year, to 70% of its portfolio, from around 60% today. As they add to their already massive equity holdings, fund managers in Oslo would be wise to heed warnings about how long the Trump-induced stock rally can last.