LONDON (MarketWatch), Aug. 12, 2011
The U.S. credit rating downgrade by Standard & Poor's will have no impact on the large holdings of U.S. Treasury bonds by Norway's oil fund, the head of the agency that manages the fund told MarketWatch in an interview Friday.
"The downgrade will have no effect on our view of the situation in the U.S. nor on the valuation of U.S. Treasurys nor on our holdings in U.S. Treasurys. In a way, it's irrelevant," said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which manages the oil fund officially known as Government Pension Fund Global.
Slyngstad's views are particularly noteworthy given the oil fund's long-term investment horizon, large size and significant holdings of U.S. Treasurys. The Norwegian fund returned 0.3% in the second quarter after gains on bond investments outweighed losses in its equities portfolio, according to data released on Friday.
The fund's market value rose to 3.11 trillion kroner (roughly $560 billion) at the end of the quarter, when it held 60.5% in equities, 39.4% in fixed-income securities and 0.1% in real estate.
S&P last Friday took the unprecedented step of cutting the U.S. rating to AA-plus from triple-A, a move that, combined with worries about global growth and the euro-zone debt crisis, triggered a week of turbulence in markets.
"It's clear that we, in line with the rest of the market, have gotten new macro numbers the last few weeks that seem to point in the direction that the speed in the economy will be less than anticipated," Slyngstad said.
"For us, it's less the macro picture and more than micro picture," he noted. "Earnings growth is slowing down in quite a few industries. There are some notable exceptions like the technology sector."
The oil fund's equity investments lost 0.7% in the second quarter, while fixed-income investments returned 1.8%, as measured in foreign currencies. In fixed income, the fund's biggest holdings were U.S. bonds, followed by U.K., German, French and Italian bonds.
The euro-zone sovereign-debt crisis, which started in Greece, spread to Portugal and Ireland and is now threatening to engulf Spain, Italy and even France, has been roiling markets.
"We have not been active neither on the buying nor the selling side in government debt in southern Europe for the last quarter and neither in this quarter," Slyngstad said. "Relative to neutral exposure, we have slightly less in debt of Southern Europe. We sold nearly half of our holdings already back in 2009. We have a cash flow every week of around a billion U.S. dollars. It does mean for practical purposes that we haven't been utilizing that cash flow to buy into those markets."
Slyngstad also said the fund is "comfortable" with its holdings of French bonds and that recent unsubstantiated rumors about a possible downgrade of France's credit rating haven't changed his views.
In equities, the fund's best-performing investment, in nominal terms, in the second quarter was Swiss food giant Nestle, followed by drug makers Sanofi and Roche Holding.
The worst-performing investment was banking group HSBC, followed by J.P. Morgan Chase & Co. and Denmark's Vestas Wind Systems.
The fund's biggest equity holdings, as of June 30, included oil giants Shell, ExxonMobil, BP as well as iPad and iPhone maker Apple.
The Norwegian government saves petroleum revenues in the pension fund, so that future generations can also benefit from the oil resources first discovered in the North Sea in 1969. Thanks to its oil wealth, Norway is one of the world's richest countries known for its generous welfare state.
Copyright (c) 2011 Dow Jones & Company, Inc.
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