Biggest Wealth Fund Returns $53 Billion After Trump Rally

(Bloomberg) -- Norway's sovereign wealth fund, the world's biggest, gained 447 billion kroner ($53 billion) last year after stocks rallied following the election of Donald Trump and as the investor plowed deeper into emerging and frontier markets.

The $900 billion Government Pension Fund Global returned 6.9 percent in 2016, after rising 2.7 percent the previous year, the Oslo-based investor said on Tuesday. Stocks gained 8.7 percent, bonds rose 4.3 percent, and real estate investment grew 0.8 percent.

“The fund returned 6.9 percent after a year of political events and uncertainty,” Chief Executive Officer Yngve Slyngstad said in the statement. “All of the fund's asset classes generated positive returns, but it was the strong equity return in the second half of the year that drove the fund's results.”

The fund rose for a fifth straight year, benefiting from a rally in equities during the fourth quarter that offset a drop in bonds. Equity markets rose after the surprise election of Trump as U.S. president amid optimism tax cuts and deregulation will spur corporate earnings.

“After the presidential election in the U.S., markets priced in higher growth and inflation in the global economy,” Slyngstad said.

The share of the fund's holdings in Europe fell to 36 percent from 38.1 percent a year earlier, while the portion in North America rose to 42.3 percent from 40.0 percent. The share held in Asia and Oceania slid to 17.9 percent from 18.1 percent. Emerging markets accounted for 10 percent of the investments at the end of the year, up from 9.8 percent.

“This slightly higher allocation to emerging markets was due to an increase in the value of our investments and to currency effects,” the fund said. It had 775 billion kroner invested in equities and fixed-income in emerging markets at the end of the year, compared with 736 billion kroner a year earlier. Investments in equities in frontier markets amounted to 13.3 billion kroner, up from 13.0 billion kroner at the end of 2015.

The fund had investments in 77 countries at the end of 2016 after Argentina was added during the year, it said.

The gains also came after the Norwegian government last year made its first ever withdrawals from the fund, which was set up in the mid-1990s. The government withdrew 101 billion kroner last year amid a growing debate over increased spending of oil wealth.

After pushing oil-wealth spending to records, the Conservative-led government earlier this month moved to tighten a fiscal rule that caps the amount it can use over the national budget each year to 3 percent of the fund's value from 4 percent. The government also proposed to raise the share of equities to 70 percent from 60 percent to boost returns that have been lagging long-term targets amid historically low rates. The fund has also lobbied to be allowed to invest in unlisted infrastructure, but has so far met resistance from the government.

At the end of 2016, the investor had 62.5 percent of its capital in equities, 34.3 percent in fixed income and 3.2 percent in real estate. The return in 2016 beat the benchmark set by the Finance Ministry by 0.1 percentage point.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Jonas Bergman, Stephen Treloar