Norway's GPIF Turns Cautious on Markets

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Sam Meredith of CNBC reports world's largest sovereign wealth fund posts $76 billion in quarterly profit as interest rates fall:

Norway’s sovereign wealth fund on Tuesday reported third-quarter profit of 835 billion Norwegian kroner ($76.3 billion), citing a stock market boost from falling interest rates.

The so-called Government Pension Fund Global, one of the world’s largest investors, said it had a value of 18.870 trillion kroner at the end of September.

The fund’s overall return for the quarter was 4.4%, which was 0.1 percentage points lower than the return of a benchmark index set by Norway’s Finance Ministry. The benchmark index against which the fund measures itself is based on the FTSE Global All Cap index for equities and Bloomberg Barclays indexes for fixed income.

Trond Grande, deputy CEO of Norges Bank Investment Management (NBIM), which manages the world’s largest sovereign wealth fund, said recent changes in monetary policy had “a pretty significant impact” on the fund’s third-quarter results.

“It’s been quite an eventful quarter if you think about it. It started with a lot of volatility throughout summer in July and into August and then you had the speculation of a soft landing and whether the Fed would cut,” Grande told CNBC’s Silvia Amaro on Tuesday.

“What I think you have seen from our numbers is that with a rising tide, all boats rise, right? And so, you saw a very broad increase in the stock market based on lower interest rates, essentially.”

The results come shortly after NBIM warned that elevated uncertainty and a “completely different geopolitical situation” meant there were now more risks to global stocks.

Equities, which accounted for 71.4% of the fund in the third quarter, notched a return of 4.5%. The return on the fixed-income investments, which account for 26.8% of the fund’s assets, stood at 4.2% over the period.

Norway’s sovereign wealth fund, the world’s largest, was established in the 1990s to invest the surplus revenues of the country’s oil and gas sector. To date, the fund has put money in more than 8,760 companies in 71 countries around the world.

Tech warning

A global easing cycle is currently under way, with major central banks taking steps to soften their aggressive stances on monetary policy as inflation falls in many high-income countries.

The U.S. Federal Reserve delivered a jumbo interest rate cut of half a percentage point last month. The Bank of England lowered rates for the first time since the coronavirus pandemic in August, and the European Central Bank last week moved to cut rates for the third time this year.

The Bank of Japan, however, held interest rates steady last month as it continues to tread cautiously on normalizing monetary policy. Japan’s central bank is regarded as something of an outlier in the global shift toward easing.

Asked about the outlook for tech stocks over the coming months, NBIM’s Grande said: “That’s a difficult question, right? Because tech has had such a phenomenal ride on the back of all the hype — let’s call it hype — about AI.”

“So, I think it’s a situation where you need to be maybe a little bit careful,” he added.

Sam Meredith of CNBC also reports on why Norway's $1.8 trillion wealth fund thinks it's time to be a little cautious:

Norges Bank Investment Management (NBIM), one of the world’s largest investors, said heightened uncertainty and concerns over the economic outlook mean that stock market risks are tilted to the downside.

NBIM, which manages Norway’s $1.8 trillion sovereign wealth fund, said that it was important to be clear-sighted about concerns down the road, even as it stands by its position of not making large asset allocation shifts on a short-term basis.

“We [started] with 70% in equities and 30% in bonds, and that’s typically where you will find us in any market situation. Now, that said, you have to be realistic,” Trond Grande, deputy CEO of NBIM, told CNBC’s Silvia Amaro on Tuesday.

“The fund that we run has doubled in size over the last five years. Our equity portfolio has returned more than 100%. So, I think it is a time of being a little bit cautious.”

Norway’s wealth fund, the world’s largest, was established in the 1990s to invest the surplus revenues of the country’s oil and gas sector. To date, the fund has put money in more than 8,760 companies in 71 countries around the world.

NBIM’s Grande cited concerns including the political climate in the U.S. ahead of next month’s presidential election, China’s stimulus-fueled bid to restore confidence in the world’s second-largest economy and the narrative of “stagnant growth” in Europe.

“So, it is a time to be a little bit cautious, and I think the risks are more on the downside in the equity markets than on the upside,” Grande said.

NBIM’s stock market warning comes shortly after Norway’s sovereign wealth fund reported a third-quarter return of 4.4% and profit of 835 billion Norwegian kroner ($76.1 billion).

The results, which came in marginally below a benchmark index against which the fund measures itself, were boosted by stock market gains on falling interest rates.'

Several major central banks have taken steps to ease monetary policy in recent months as inflation falls in many high-income countries.

On Tuesday, the International Monetary Fund said that while the global fight against inflation is “almost won,” the downside risks are “increasing and now dominate the outlook.”

‘A tough, tough environment’

It’s not just Norway’s sovereign wealth fund that’s worried about the outlook for equities over the coming months.

Eric Johnston, chief equity and macro strategist at Cantor Fitzgerald, said last month that downside risks for the assets were very high.

Johnston cited three major concerns for the U.S. economic outlook over the next three to six months: declining excess savings, consumer prices that are “simply too high,” as well as somewhat restrictive Federal Reserve monetary policy.

“And then, oh by the way, you have China, which is 17% of global GDP, that is a drag,” Johnston told CNBC’s “Closing Bell” on Sept. 12. “So, I think it is a tough, tough environment.”

Johnston’s comments came before the Fed delivered a jumbo interest rate cut of half a percentage point last month.

Not much going on in Canada these days as transactions have slowed considerably in private markets so I thought I'd cover the latest quarterly results of Norway's Government Pension Fund Global, the world's largest sovereign wealth fund.

Clearly Norges Bank Investment Management (NBIM) is worried about the environment and taking a more cautious stance.

But as Trond Grande, deputy CEO of NBIM, told CNBC’s Silvia Amaro last Tuesday, the Fund takes a long-term view and is very bottom up focused in its portfolio, less top down.

In essence what this means is the Fund invests 70% of its assets in global equities, 30% in global bonds and they also invest a little in real estate and infrastructure.

The exact breakdown is 72% global equities, 26.1% fixed income, 1.7% in real estate and 0.1% in renewable energy infrastructure:

So it's fair to say when rates go down and stocks keep climbing higher, the Fund is doing well.

But the folks at Norway are very astute investors, they know this party in equities is standing on its last legs and are rightly sounding cautious as the stock market melts up.

How do they know? Well, just look at valuations, this is one of the most expensive markets in 100+ years:

Now, I know, valuations don't mean anything when momentum reigns and all the quant funds are jamming indexes higher to create FOMO, but when the music stops, this market will suffer a major setback.

And Trahan and yours truly are right and we see a recession in the next six months, expect a significant decline in stocks.

Anyways, this week is a big week for earnings and then we have King Nvidia reporting earnings on November 20th but in between we will have another US jobs report to digest later this week and of course, the US elections next Tuesday. 

Below, Trond Grande, deputy CEO of Norges Bank Investment Management, which manages the world's largest sovereign wealth fund, discusses the fund's third-quarter earnings, European banks and the outlook for tech stocks.

Listen carefully, I think he had a bit of a Freudian slip when he said the Fed is engineering what looks like a soft landing, "sort of". I assure you the Fed is nowhere close to engineering a soft landing.

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