Norway's fund divestment proposal sends European oil index to one-month low
17 November, 2017, 00:27 | Author: Elaine Woods
It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas.
"It clearly stands out, perhaps not surprisingly, but not obviously, that indeed there is a substantial difference.in return between the oil and gas sector and the broad stock market in periods when the oil price changes substantially", Matsen said.
Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe".
The Norwegian central bank, which uses the fund to invest the proceeds of the country's oil industry, said that investing money back into the energy sector amplifies the government's exposure to the price of crude, particularly given the country's majority stake in Statoil ASA.
Oil and gas equities now account for around 6 percent of the GPFG's benchmark index, or just over 300 billion kroner (36.6 billion US dollars), according to the bank.
Owning close to 1.5% of global stocks, the Norwegian fund largely follows indices, but is allowed some active management of its portfolio. The fund could dump up to $40 billion (€33.9 billion) worth of shares in worldwide oil giants such as Royal Dutch Shell, BP, Chevron and Exxon Mobil. It also held stakes in Italy's Eni, France's Total and Sweden's Lundin Petroleum.
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"The risk for the oil sector is how many investment funds will downsize their exposure to extractive industries", said Jason Kenney, oil analyst at bank Santander.
The fund is among the world's biggest investors in stocks, owning $667 billion worth of shares in over 9,000 companies globally.
The aim of the proposal is to make Norway's wealth less vulnerable to a permanent drop in oil prices, especially at a time when the fund is increasing the proportion of its portfolio it invests in equities to 70 percent from 60 percent previously.
The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings.
Norway is a major oil producer, and it has plowed its energy earnings into the fund in order to fund pensions and other government expenses. "We can do that better by not adding oil price risk through the fund". The proposal has to be reviewed by the Finance Ministry, which in turn needs to decide whether to propose it to parliament.
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