Norway’s sovereign wealth fund — the Government Pension Fund Global — believes that the markets today are moved by monetary policy more than ever before, which makes monetary policy itself a risk that must be constantly monitored. Norway’s $890 billion wealth fund is the largest in the world, and is well-respected for its savvy and long-term record of solid returns. The fund returned 7.6% in 2014, its smallest gain in the last four years.
Statement from CEO of Norway sovereign fund
“Monetary policy does affect pricing in today’s market to such an extent that monetary policy itself has been a risk you have to watch,” noted Yngve Slyngstad, the CEO of the fund, in an interview on Wednesday with Bloomberg. “Investors are focused more on monetary policy changes than has been generally the case, than at any time, as far as I can remember.”
“As anything that moves prices is a risk that has to be monitored, here the effects of monetary policy affect prices dramatically,” Slyngstad continued in explanation. “It’s of course always been the case with long rates, and now more significantly with the currency. That’s just a fact of the current market.”
More on global monetary risks
The world’s biggest wealth fund has noted that it is facing smaller returns given record-low bond yields. The fund announced last month that it was developing strategies to profit from quantitative easing, including the purchase of Spanish bonds. Of note, the ECB began its QE/asset-purchase program last month, purchasing a range of euro-area sovereign debt to further reduce long-term rates.
The result has been bond yields going negative in many countries and a massive surge in stocks. The Euro Stoxx 600 index hit a record high earlier this week, and has already soared 21% on the year.
The Norwegian sovereign wealth fund had investments in bonds in 31 currencies as of December 31st, 2014.
The Government Pension Fund Global is legally required to hold 60% of its funds in stocks, 35% in debt and 5% in real assets. The fund typically invests in global indices, but it is not limited to investments in stock and bond indices.