Picture: REUTERS
Picture: REUTERS

Oslo — Norway’s wealth fund has proposed overhauling how its holdings are placed across the globe, calling for a shift away from Europe in a move that would allow it to boost its US holdings by as much $100bn and take a larger chunk of the biggest technology companies.

In a letter sent to the finance ministry released on Tuesday, the $1-trillion fund said that its holdings “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, in 2018, asked the fund to review the geographical weighting in place since 2012. The ministry said on Tuesday that it would present its response in the “spring of 2020” and that any changes would be implemented gradually.

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, which are already the fund’s largest holdings.

“Equities make up the majority of the investments in the  Government Pension Fund Global and it is important that the framework for these investments is appropriate and updated,” finance minister Siv Jensen said in a statement.

The current setup gives European stocks a factor of 2.5 and a share of 33.8% of the portfolio. North American stocks only have a factor of 1.0, so despite being a bigger market they only have a share of 41.2%. Asia and Oceania, and emerging markets, have a bigger factor of 1.5 and shares of 14.6% and 10.1%, respectively.

US stocks are already the fund’s biggest holdings, with $245bn at the end of 2018. If it were to move to float-adjusted market weights, that would jump to $345bn. The biggest reduction would come in UK stocks, where the share would be cut to about 5% from 9% now.

A potential shift in geographical weights will be the latest in a string of big changes for the fund, which recently raised its equity holdings to 70%, decided to dump emerging-market debt, scaled down plans for real estate, and is working on starting to invest in renewable-energy infrastructure.

The fund’s current regionally adjusted index has had an annual return of 9.2% since 2003, while a float-adjusted market weight index has returned 9.3%.

Bloomberg