Norway's sovereign wealth fund, which owns over $1bn (€725m) of shares in CRH and Smurfit Kappa, has said that stock market gains may reverse – and Europe's biggest equity investor added that it won't use new inflows to buy more shares.
"Our share in the stock market has been stable or falling even though markets are rising, and that means in practice that we're not using inflows to buy stocks," Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said at a press conference last week in Oslo.
The fund is preparing for a "correction" in stock prices, he said.
The sovereign wealth fund owns a near 3 per cent stake in Ireland's most valuable listed company CRH, as well as being the largest shareholder in Gary McGann's Smurfit Kappa, holding a 8.74 per cent stake. The Norwegian investor also owned chunky stakes in DCC, Aer Lingus, C&C, Glanbia, Bank of Ireland, Ryanair, Paddy Power, Kingspan and Providence Resources at the end of last year.
The chilling warning of a correction follows a surge in stock values that added 7.6 per cent to the fund's equity portfolio last quarter.
The $810bn Government Pension Fund Global, the official name, returned 5 per cent in the third quarter, representing a 228bn kroner ($39bn) gain, it said last week. Bond investments climbed 0.3 per cent and real estate holdings returned 4.1 per cent, it said.
"Stock market returns in the third quarter where driven mainly by continued economic recovery in developed markets," Slyngstad said. "The negative trend in emerging markets continued into the quarter, but high economy activity in China led to a rebound toward the end of the period."
Stocks rallied in the third quarter as the US Federal Reserve unexpectedly refrained from ending its $85bn-a-month quantitative-easing program last month.
Growth forecasts for China, the world's second-biggest economy, also improved, propelling equities globally.
The MSCI World Index of stocks gained 7.7 per cent in the quarter, paring some gains late last month as concern grew over a US government shutdown.
Norway's wealth fund, which gets its guidelines from the government, held 63.6 per cent in stocks at the end of September, up from 63.4 per cent in the second quarter. Bond holdings slid to 35.5 per cent from 35.7 per cent while real estate accounted for 0.9 per cent. The fund is mandated to hold 60 per cent in stocks, 35 per cent in bonds and is building up to 5 per cent in real estate, while allowing for fluctuations. It mostly follows global indexes and has some leeway to stray from those benchmarks.
The investor, which posted its second-best year in 2012, is undergoing a shift in strategy to capture more global growth.
That has involved moving investments away from Europe, as emerging markets in Asia and South American make up a bigger share of the world economy. The fund has weighted its bond portfolio according to gross domestic product, after shifting away from a market weighting to avoid nations with growing debt burdens.
Its largest stock holding at the end of the quarter was Nestle SA, at a value of 38.5bn kroner. The biggest bond holding was in US Treasuries, at a value of 344bn kroner, followed by Japanese and German government bonds.
Mexico rose to fifth place in the fund's bond holdings, while Brazil and South Korea joined the top 10, at the expense of France and Canada.
Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 per cent stake in Statoil ASA, the country's largest energy company. Norway is western Europe's largest oil and gas producer. The fund, which had an average holding of 1.2 per cent of the world's listed companies at the end of 2012, invests abroad to avoid stoking domestic inflation.
'The negative trend in emerging markets continued into the quarter'
Prime Minister Erna Solberg said before the election she would consider splitting the fund into smaller units.
The government deposited 58bn kroner of petroleum revenue into the fund in the quarter. The return beat the benchmark set by the Finance Ministry by 0.1 percentage point.
The investor got its first capital infusion in 1996 and has been taking on more risk as it expands globally. It first added stocks in 1998, emerging markets in 2000 and real estate in 2011 to safeguard its wealth.
© Bloomberg. Additional reporting by Nick Webb