iFund- The world’s largest sovereign wealth fund shows the importance of diversification and rebalancing

2019-03-19 10:04
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The world’s largest sovereign investors - Norway’s Government Pension Fund Global (GPFG), which manages US$1 trillion of assets, announced on last Friday that it plans to dispose its holding of oil and gas exploration companies from its portfolio, in order to reduce the vulnerability of its economy to a permanent oil price decline.

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The world’s largest sovereign investors – Norway’s Government Pension Fund Global (GPFG), which manages US$1 trillion of assets, announced on last Friday that it plans to dispose its holding of oil and gas exploration companies from its portfolio, in order to reduce the vulnerability of its economy to a permanent oil price decline.

GPFC currently holds a $62 billion stock portfolio, with energy stocks accounting for 5.9% of stock investment, worth about $37 billion. The current strategy shift will trigger a sell-off of a total of 150 listed companies, which worth US$7.9 billion (1.2% of stock investment), including Chesapeake Energy, Cairn Energy and China National Offshore Oil (CNOOC), etc. However, integrated oil and gas companies that do both down and upstream such as BP, Exxon Mobil and Shell, will remain unaffected from current move.

In addition to posing some short-term share price pressure to the oil & gas sector, especially for the upstream companies, GPFC’s strategy shift is likely to create a sense of bearishness in oil prices over the long-term plus a relatively more optimistic view to the new energies. Besides, a more relevant message to the general investors is that it reflects the importance of a dispersed and diversified investment portfolio, as well as the needs of rebalancing on a regular basis in response to environmental and financial changes. In fact, oil and natural gas account for 50% and 20% of Norway’s total exports value and fiscal revenue respectively; while Norwegian sovereign wealth funds are an important source of income for pensions and government spending, with around 5.9% of stock holdings are in energy companies. As such, an oil price decline could be a double whammy on Norwegian financial stability.

In the same way, when developing a personal investment portfolio, investor should pay close attention to the correlation of his income source together with the assets or stocks that he invests in. For example, for people that works in bank should avoid excessive concentration of his investment portfolios on financial stocks. This is because investors may not only loss his income when the financial industry is in recession, but his financial stock prices also tend to fall at the same time, causing double losses.

Funds related to Energy

Invesco Energy Fund A Acc USD
Invesco Energy Fund A Acc EUR (Hedged)
BlackRock Global Funds – New Energy Fund A2 Acc USD
BlackRock Global Funds – New Energy Fund A2 Acc EUR
BlackRock Global Funds – World Energy Fund A2 AUD (Hedged)
BlackRock Global Funds – World Energy Fund A2 Acc USD
BlackRock Global Funds – World Energy Fund A2 Acc EUR
BlackRock Global Funds – World Energy Fund A2 Acc EUR (Hedged)
Investec Global Strategy Fund – Global Energy Fund A Inc Gross USD
Investec Global Strategy Fund – Global Energy Fund A Acc Gross USD

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