On Wednesday, local time, the world's largest sovereign fund with a total market value of more than $1.2 trillion, Norway's sovereign wealth fund, announced its first-half performance report. As inflation and recession concerns hit the stock and bond markets, the portfolio lost 14.4% in the first half of the year. Market value fell by NOK 1.68 trillion ($174 billion), breaking a previous record set during the 2008 financial crisis.
In fact, given the intensified volatility of global risk assets in the first half of this year, many institutions suffered heavy losses.
According to recently released data, Berkshire Hathaway lost more than $45 billion in investment from January to June, and the Japanese Government Pension Investment Fund (GPIF) lost nearly $44 billion in the same period.
The Norwegian Sovereign Wealth Fund was established in 1996, and its funds come from the country's oil and natural gas revenue. It serves as a strategic reserve when energy is exhausted and protects the future of Norway's economy.
With a 14.5% yield in 2021, losses in the first half of this year will eat into last year's full-year earnings.
"The first half of the market was characterized by rising interest rates, high inflation and a geopolitical crisis," Nicolai Tangen, chief executive of Norges Bank Investment Management (NBIM), which runs the fund, said in a statement.
A portfolio of stocks lost 17%, with tech stocks falling the most, down 28%, with stocks such as Amazon and Meta falling sharply in the second quarter.
"The surge in demand for digital advertising, e-commerce and semiconductors during the epidemic has returned to normal. Investors are increasingly worried about recession, especially technology stocks." NBIM analysis said.
The consumer discretionary sector was the second-worst performer in the first half of the year, down 24.9%.
"These stocks have had a rough start to the year, with investors expecting weaker household demand with the rapid rise in the price of essentials such as energy, housing and food," the statement said.
The energy sector was the only one with positive returns, with Norway's sovereign fund's investments in companies including Shell and Exxon Mobil bringing in a 13.2% profit.
The fixed-income portfolio, made up mostly of U.S., Japanese and German government bonds, fell 9.3%, as a surge in global inflation and a trend of central banks raising interest rates sent bond prices volatile.
Further explaining the results in a news release, NBIM CEO Tangan said: "We are long-term investors, so we have to tolerate this volatility. What is unusual this time is that we are in both stocks and bonds. loss."
At the end of June, 68.5% of the portfolio was invested in equities, 28.3% in fixed income, 3% in unlisted real estate, and 0.1% in unlisted renewable energy infrastructure.
The Economist Intelligence Unit analyst Matthew Oxenford believes that Norway's sovereign fund has performed similarly to most large institutions.
In the first half of the year, global financial markets experienced major turbulence, and the value of diversified funds basically fell.
“The decline in investment returns has been largely driven by aggressive monetary tightening by central banks, and the impact of rising low-risk returns on Treasuries and other low-risk returns on high-growth tech stocks is very clear,” he said. It is possible to pursue a long-term investment strategy and weather the storm. It is also difficult to see the level of earnings set in 2020, 2021 ahead, as global central bank rates are unlikely to return to the ultra-low pandemic-era rates anytime soon s level."