The Norwegian Sovereign Wealth Fund equity portion is similar to VT (Vanguard Total World Stock)

[assyadh]

Based on https://www.nbim.no/en/the-fund/how-we- ... ark-index/

It looks like a 70/30 portfolio. Equities are based on the FTSE Global All Cap index (what Vanguard Total World Stock ETF tracks)

The tilt I noticed is that they have less US exposure than the current index has (53% vs 62%).

This is quite a bogleheads take for such a large fund. Vast majority of their assets is indexing, with just a small active tilt.

[Valuethinker]

Based on https://www.nbim.no/en/the-fund/how-we- ... ark-index/

It looks like a 70/30 portfolio. Equities are based on the FTSE Global All Cap index (what Vanguard Total World Stock ETF tracks)

The tilt I noticed is that they have less US exposure than the current index has (53% vs 62%).

This is quite a bogleheads take for such a large fund. Vast majority of their assets is indexing, with just a small active tilt.

Yes. They got the best academic advice, and the best academic advice said index. Very typically pragmatic and Norwegian. They pay high taxes, and limit withdrawals from the Sovereign Wealth Fund (SWF) to c. 3% pa from memory. They see this money as to be shared with all Norwegians - now and in the future. Not just the ones who are alive right now. And someday, the oil will be gone - so they prepare for that day.

From memory, due to the high exposure of the Norwegian economy to the oil & gas prices, they tilt away from fossil fuel companies - at least there was talk of that but I don't know if they implemented.

Set up at the instigation of an Iraqi oil geologist- a refugee to Norway from Saddam Hussein in the 1970s. Which was a sensitive point with Norwegians, but now acknowledged publicly.

They have largely eschewed "alternatives" AFAIK - private equity, real estate etc. Preferring transparency (many of the Limited Partner agreements for example prohibit public disclosure of returns or portfolio information).

[Elric]

Interesting. Looks like in addition to stocks and bonds, they invest in unlisted real estate and renewables infrastructure (https://www.nbim.no/en/the-fund/how-we-invest/). For equities, they state that "None of our investment strategies are 100 percent passive" and they avoid some types of companies while investing more heavily in others (see https://www.nbim.no/en/responsible-investment/). However they also seek a tracking error of no more than 1.25%.

Their bond portfolio is 70% government, 30% corporate.

[manlymatt83]

Can people invest in this too?

[Kirby2000]

I ran the Forex #s. Norway has about $1.75 trillion invested this way, and using a SWR of 3% is more than likely to keep growing that foundation. An interesting and impressive national investment strategy.

[barcharcraz]

Indexing is likely a way for the SWF to maximize their Section 892 tax advantages as well; Sovereign wealth funds are not taxed on non-controlling investments in the US.

[Elric]

They also don't invest in Norwegian companies so as not to overheat the Norwegian market.

[Valuethinker]

I ran the Forex #s. Norway has about $1.75 trillion invested this way, and using a SWR of 3% is more than likely to keep growing that foundation. An interesting and impressive national investment strategy.

3% is just my vague memory of what the actual policy is.

They only allow drawing down a certain small percentage for current government expenditure. Norway is thus unusual for a petro-state, in also being a highly taxed one, to pay for their generous welfare state**. Rather like a famous American university like Harvard or Yale - the endowment is only drawn down at a limited rate.

** they have a very high quality of life. Exercise. Outdoors. Controlled working hours, work-life balance etc. But not without many social problems - alcoholism etc.

[Valuethinker]

Interesting. Looks like in addition to stocks and bonds, they invest in unlisted real estate and renewables infrastructure (https://www.nbim.no/en/the-fund/how-we-invest/). For equities, they state that "None of our investment strategies are 100 percent passive" and they avoid some types of companies while investing more heavily in others (see https://www.nbim.no/en/responsible-investment/). However they also seek a tracking error of no more than 1.25%.

Their bond portfolio is 70% government, 30% corporate.

Thank you.

I haven't read their policies in a few years. So they have added more unlisted investments.

I think the argument is with Real Estate that most of the world's rental RE is not actually stock market listed. REITs are a big sector in only a few stock markets, and don't include many of the largest property portfolios.

[z3r0c00l]

This is quite a bogleheads take for such a large fund. Vast majority of their assets is indexing, with just a small active tilt.

Sounds like the very smartest money, when it must be invested conservatively, makes the obvious choice. Only those desperate (state pension funds) or reckless (hedge funds, financial services firms) seem to take outsized bets. Those that survive can show great annual returns, for a while anyway. Bonus is that the sovereign wealth funds strengthen the diplomatic leverage a country has by holding significant portions of international stocks and bonds.

[comeinvest]

I'm curious if they stoically kept their allocation to U.S. treasuries and European government bonds steady when especially European yields were hugely negative, or if they did some sort of dynamic asset allocation.

[GP813]

There was an episode of Meb Faber where he compared CalPERS which had all these exoctic investments and how terrible the portfolio did vs NVPers(Nevada)where the fund manager basically just indexed. Who do you think greatly out performed?

I think CalPERS even had a "black swan" hedging strategy that they exited right before Covid-19!

[DaufuskieNate]

At $1.7 trillion, this fund is the largest sovereign wealth fund in the world. It holds an average of 1.5% of the world's listed companies. It is extremely well advised. A fund this size has to consider market impact costs in its investment strategy. Investing in the world's largest companies in an index-like fashion is really the only choice that makes sense.

[Raymond]

...Set up at the instigation of an Iraqi oil geologist- a refugee to Norway from Saddam Hussein in the 1970s. Which was a sensitive point with Norwegians, but now acknowledged publicly...

Farouk al-Kasim moved from Iraq to Norway in May 1968 with his Norwegian wife Solfrid (they had met in London in the mid-1950's where she was an au pair and he was studying petroleum geology at Imperial College London), in order to get medical care for their son with cerebral palsy:

"The Iraqi who saved Norway from oil" - Financial Times

[Harmanic]

Can people invest in this too?

Isn't that the point of this thread? VT and chill!

[Valuethinker]

...Set up at the instigation of an Iraqi oil geologist- a refugee to Norway from Saddam Hussein in the 1970s. Which was a sensitive point with Norwegians, but now acknowledged publicly...

Farouk al-Kasim moved from Iraq to Norway in May 1968 with his Norwegian wife Solfrid (they had met in London in the mid-1950's where she was an au pair and he was studying petroleum geology at Imperial College London), in order to get medical care for their son with cerebral palsy:

"The Iraqi who saved Norway from oil" - Financial Times

Thank you. I remember the article but clearly I did not remember the detail exactly.

I knew a Norwegian-Iranian whose father had fled Iran after the 1979 revolution, also working in the oil industry. I may have confused the two.

I wish something similar had happened in Alberta. But we'd have to get into the details of Alberta politics, and (relatedly, but not the sole cause) a piece of Federal Policy called "The New Energy Policy" which still evokes bitterness in Alberta to this day, over 30 years later. This isn't the place for that - but if you raise NEP on a forum with Canadians, step back before the flames burn your skin ....

[Valuethinker]

At $1.7 trillion, this fund is the largest sovereign wealth fund in the world. It holds an average of 1.5% of the world's listed companies. It is extremely well advised. A fund this size has to consider market impact costs in its investment strategy. Investing in the world's largest companies in an index-like fashion is really the only choice that makes sense.

Also the Middle Eastern SWFs, and the 2 Singaporean ones (Temasek and SIC are, taken together, close to $1 trillion?), use their SWFs for development purposes, and for political influence purposes as well. Ditto China SWF of course. They achieve that via direct investments - ownership of real estate, and of whole private companies.

The value of private companies is much greater, in aggregate, than the value of public companies in the world (depending on how you value private companies, of course). So those are deeper pools to play in.

Norway wants a cleaner governance than that.

[deepvalleys]

Yes, there is a rule of maximum 3% into the state budget. It used to be 4%.
Now the actual spending is 2.5% this year, which is already such a large amount that some people criticise the dependence on "oil money" in the budget. Meanwhile, municipalities and schools are in economic crisis because they are not allotted enough money.

I ran the Forex #s. Norway has about $1.75 trillion invested this way, and using a SWR of 3% is more than likely to keep growing that foundation. An interesting and impressive national investment strategy.

3% is just my vague memory of what the actual policy is.

They only allow drawing down a certain small percentage for current government expenditure. Norway is thus unusual for a petro-state, in also being a highly taxed one, to pay for their generous welfare state**. Rather like a famous American university like Harvard or Yale - the endowment is only drawn down at a limited rate.

** they have a very high quality of life. Exercise. Outdoors. Controlled working hours, work-life balance etc. But not without many social problems - alcoholism etc.

[deepvalleys]

The fund has obviously been a success.
But, considering that this is basically index investing, which is something we believe in here: Why would fund managers need exceptionally high fees? Maybe not high in percentage, but this article suggests more than one billion USD in fees has been paid since the start in 1998 untill 2015.

[Blue456]

Why are the Norwegians speculating in FOREX?

[yolointopants]

The CEO of the fund has a nice podcast. Lots of big name CEOs from companies go onto to kiss the ring.

I really liked the episode with the Louis Vuitton CEO. That was a good interview. They talk a lot about how their product is purchased by affluence seekers versus the actual affluent. They are acutely aware that the human desire to project wealth is a powerful motivator.

Podcast
https://pca.st/podcast/8bd26f30-8a9a-01 ... cc26574db2

Actual LVMH episode I mentioned:
https://pca.st/episode/3827aa2e-d802-49 ... c50a0f8b39

[Valuethinker]

Why are the Norwegians speculating in FOREX?

You mean they have currency overlays?

That's standard in big pension funds. If your liabilities are in USD then it's relatively easy. If they are not, and your home currency is a minor currency, thinly traded, then you have to think about this fairly hard.

I assume they have a macroeconomic view, and they implement that via currency overlay.

[Valuethinker]

The fund has obviously been a success.
But, considering that this is basically index investing, which is something we believe in here: Why would fund managers need exceptionally high fees? Maybe not high in percentage, but this article suggests more than one billion USD in fees has been paid since the start in 1998 untill 2015.

So 1/1000th of funds under management? 0.001 or 0.1 basis point?

$1bn/ $1trillion (unwtd average over time) = 1/1000th maths in my head (but over 17 years). So that's a very small fee pa ?

[Elric]

The fund has obviously been a success.
But, considering that this is basically index investing, which is something we believe in here: Why would fund managers need exceptionally high fees? Maybe not high in percentage, but this article suggests more than one billion USD in fees has been paid since the start in 1998 untill 2015.

It isn't index funds. It's close, but they actively managed with their own screening criteria.

[Harmanic]

One of the keys to its long term success is its SWR of 2.5% than its portfolio composition. That should allow it to grow in real terms indefinitely.

[ScubaHogg]

The fund has obviously been a success.
But, considering that this is basically index investing, which is something we believe in here: Why would fund managers need exceptionally high fees? Maybe not high in percentage, but this article suggests more than one billion USD in fees has been paid since the start in 1998 untill 2015.

So 1/1000th of funds under management? 0.001 or 0.1 basis point?

$1bn/ $1trillion (unwtd average over time) = 1/1000th maths in my head (but over 17 years). So that's a very small fee pa ?

Right? That seems incredibly cheap

[Fireishere]

One of the keys to its long term success is its SWR of 2.5% than its portfolio composition. That should allow it to grow in real terms indefinitely.

Norway can withdraw up to 3% of the fund's value each year so they’re not using SWR.

[Valuethinker]

One of the keys to its long term success is its SWR of 2.5% than its portfolio composition. That should allow it to grow in real terms indefinitely.

Norway can withdraw up to 3% of the fund's value each year so they’re not using SWR.

SWR in any case assumes final dissolution. It's a drawdown of capital.

AFAIK Norway is not setting a time horizon on the life of a fund. A country wouldn't set a time horizon on its own existence, would it?

[Harmanic]

Norway can withdraw up to 3% of the fund's value each year so they’re not using SWR.

SWR in any case assumes final dissolution. It's a drawdown of capital.

AFAIK Norway is not setting a time horizon on the life of a fund. A country wouldn't set a time horizon on its own existence, would it?

There are plenty of examples of other countries and pension funds that did.