Norway’s US$1 trillion wealth fund proposed changes to how its holdings are weighted geographically, calling for a reduction in investments in Europe and for taking a bigger chunk of the US stock market dominated by biggest technology companies.
In a letter sent to the Finance Ministry on Tuesday, the fund said that “the geographical distribution should be adjusted further towards float-adjusted market weights by increasing the weight of equities in North America and reducing the weight of equities in European developed markets.”
The response comes after the ministry last year asked the fund the review the geographical weighting that had been in place since 2012.
The fund is overweight Europe to better match Norway’s trade flows, but this has been questioned since it has missed out on the bigger returns in US markets. A change could set off an investment spree in US stocks, including in technology giants such as Microsoft, Apple and Amazon.com, which are already the fund’s largest holdings.
“We’re taking a close look at this issue, we’ve spent much time on this and made several analyzes,” Egil Matsen, the deputy governor at Norway’s central bank, who’s in charge of overseeing the fund, in an interview earlier this month.
The current setup gives European stocks a factor of 2.5 and a share of 33.8 per cent of the portfolio. North American stocks only have a factor of 1, so despite being a bigger market only have a share of 41.2 per cent. Asia and Oceania and emerging markets have a bigger factor of 1.5 and shares of 14.6 per cent and 10.1 per cent, respectively.
That composition was last remodeled in 2012, when geographical weights adjusted for free float were introduced. Back then, the bank recommended that the regional distribution of the equity investments should move in the direction of global markets, but that any transition should take place over a long time and in stages. “In 2012, we also said there were arguments to keep the adjustment factors we now have,” Mr Matsen said.
