Wednesday, May 18

The second highest return ever for the Petroleum Fund

The Petroleum Fund achieved the second highest return ever of NOK 1,580 billion in 2021, after a solid rise on the stock exchanges.

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The case is being updated.

The return last year corresponds to 14.5 percent.

Measured in kroner, this is the second highest return ever, only beaten by 2019 where the fund received a return of NOK 1,692 billion.

On Thursday, the Petroleum Fund’s head Nicolai Tangen and deputy chairman Trond Grande will present last year’s figures for the Petroleum Fund, which Norges Bank manages on behalf of the state.

The fund was positively affected by the fact that the stock markets in important countries such as the USA rose sharply last year. For example, the broad S & P500 index rose by almost 27 percent last year.

– The good result is primarily due to a very strong development in the stock market throughout the year, says head Nicolai Tangen in Norges Bank Investment Management, which manages the fund.

– There was a positive return in all sectors, but especially the investments in technology and finance have done well. The investments in technology received a return of as much as 30.2 percent, he says.

Microsoft contributed the most

The equity return in the fund was 20.8 per cent last year, while fixed income investments had a return of minus 1.9 per cent. Real estate investments returned 13.6 percent last year, according to the fund.

Of individual shares, Microsoft contributed the most to the Petroleum Fund’s return last year, with NOK 78 billion. Google owner Alphabet accounted for NOK 64 billion of the return, and Apple for NOK 61 billion.

Of individual countries, the United States contributed the most to last year’s return, with NOK 960 billion of the total. The United Kingdom contributed 112 billion and France 88 billion of the return.

Downturn on the stock exchanges after the New Year

The fund had a value of NOK 12,340 billion at the beginning of 2021.

After the New Year, however, markets have been turbulent, with declines on many stock exchanges. According to the unofficial counter on the fund’s website, the value has fallen to around NOK 11,800 billion in recent weeks.

The value of the Petroleum Fund at the end of 2020 was NOK 10,914 billion.

The full report and lists showing which shares the fund owns will not be presented until 3 March. Here you can apply for which shares the fund owned at the end of 2020.

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Affected by the krone and gas revenues

In some years, the Petroleum Fund has risen in value even though the return was negative. The reason this can happen is that there are more factors than just the return on investment that affect the fund’s value.

For example, a weaker krone will lead to the fund becoming more valuable measured in kroner. Many of the fund’s assets are in currencies such as the euro or the dollar, and these become more valuable when the krone weakens. In the same way, a stronger krone will lower the fund’s value measured in kroner.

The krone strengthened against several major currencies last year, and in isolation it reduced the fund’s value by NOK 25 billion last year.

In addition, central government savings and withdrawals will affect the fund value. The state’s oil and gas revenues are invested in the fund, and for many years the state saved money in the fund because the use of oil money was lower than the oil and gas revenues. In recent years, central government expenditure has exceeded oil and gas revenues, and thus the central government has withdrawn money from the fund instead of saving.

Last year, the government withdrew NOK 129 billion from the fund.

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Varying returns

The return on the fund’s equity investments has varied greatly since the current fund structure was established in 1998. This has been a period of sharp rise on world stock exchanges, and the fund has overall had a negative return in just four of the years in the period.

The fund is mainly invested in equities, but also has a number of government bonds and real estate, and last year the fund made its first direct investment in renewable infrastructure.

At the end of 2021, the fund had 72 per cent of its investments in equities, 25.4 per cent in fixed income securities and 2.5 per cent in unlisted real estate. Unlisted infrastructure accounted for 0.1 per cent.

The fund has not had a negative return since 2018, when the total return in the fund was minus NOK 633 billion, or minus six percent.

For the Petroleum Fund’s equity investments, the worst year so far was the financial crisis year 2008, when the shares returned minus 40 percent.

The best year for the fund’s shares was 1999, when the return was 34.81 per cent. Also in 2009, when the markets recovered from the financial crisis, the return was solid, at 34.21 per cent.

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