Norway's $1 trillion pension fund underperforming the market?

[RogueDadMD]

http://money.cnn.com/2017/09/19/investing/norway-pension-fund-trillion-dollars/index.html

Money quote (bold is mine):

"The fund is among the world's biggest investors in stocks, owning $667 billion worth of shares in over 9,000 companies globally. It owns on average 1.3% of all listed companies worldwide.

Its largest holdings are in Apple, Nestle, Royal Dutch Shell, Novartis, Microsoft, and Alphabet, the owner of Google.

The fund also owns large real estate portfolio, including stakes in buildings at the world's most desirable addresses, such as Times Square in New York, Regent Street in London, and Champs Elysees in Paris.

Returns have been impressive.

The fund has generated an annual return of 5.9 % since January 1998, a figure that is reduced to 4% when management costs and inflation are included. In 2016, it clocked a 6.9% return worth 447 billion Norwegian kroner ($57 billion)."

This year is shaping to be even more prosperous. The fund made 499 billion kroner ($63 billion) in just the first two quarters of 2017."

I went to http://www.moneychimp.com/features/market_cagr.htm and it says for S&P 500, from Jan 1 1998 to Dec 31 2016, the "average" return was 5.83% and "annualized return (=true CAGR)" = 4.21% (adjusted for inflation and including divdends).

So if I'm understanding these numbers right, they would have made 0.2% more annually buying an S&P 500 index fund from Vanguard.  Which adds up to a lot.

I'm assuming the management cost of buying a single index fund is low, though may not be true for a government of course.  However I am sure they have a very fancy team of high priced people investing these funds and underperforming the market.  It's like how Harvard does the same thing with their endowment and can't beat an index fund either.

[East coast]

Regarding your comparison on the S&P 500 - If you had $1 trillion would you really just put 100% in an S&P 500 index fund? Of course not! So the comparison makes no sense.

At that size you ARE the market - you can't beat it or do worse than it (realize that the market here is not some strictly defined term - it has no literal meaning).

Regarding Harvard - they were averaging more than 10% a year over a twenty year period as of last year (they don't seem to publish that number this year, but at 8% return this year, i'd be surprised if that was too much different) - you pick the benchmark and they are very likely to have beat it.

I make this comment directly regarding to the above comment, but more generally because every year around this time when the university endowments release their numbers, we see this kind of comment and I don't follow the thinking.

[StarTrekDoc]

I've always thought Harvard's endowment folk had insider information because they consistently beat.  It's crazy.  Probably envy talking there

 

$190,000 per citizen in Norway --- ironically they are leaders in the EV adoption.

[RogueDadMD]

East coast wrote:

Regarding Harvard – they were averaging more than 10% a year over a twenty year period as of last year (they don’t seem to publish that number this year, but at 8% return this year, i’d be surprised if that was too much different) – you pick the benchmark and they are very likely to have beat it. I make this comment directly regarding to the above comment, but more generally because every year around this time when the university endowments release their numbers, we see this kind of comment and I don’t follow the thinking.

Click to expand...

https://www.nytimes.com/2017/01/25/business/harvard-endowment-management-changes.html?mcubz=1

http://www.marketwatch.com/story/harvards-changing-investment-practices-to-cost-half-of-endowment-staff-jobs-2017-01-25

I brought up Harvard because of these stories (and others) that I read months ago -- they certainly don't seem happy with their returns.  It sounds to me like you have some emotional attachment to their endowment or returns.

Here is more:

https://www.forbes.com/sites/rickferri/2013/10/17/college-endowments-show-little-investment-skill/#294f02c94444

https://www.nytimes.com/2016/02/26/business/in-college-endowment-returns-davids-beat-the-goliaths.html?mcubz=1

I've never read anything about the Ivy League's significantly outperforming the market, but am happy to look at the data that shows it.

East coast wrote:

Regarding your comparison on the S&P 500 – If you had $1 trillion would you really just put 100% in an S&P 500 index fund? Of course not! So the comparison makes no sense.

Click to expand...

The S&P 500 is an example.  But your point is basically that at a certain asset level you just want to be speculative and accept below market returns.  Yes at a certain point you have the luxury of doing so -- a few billion here or there costs them nothing, but they did all this because they think they are beating the market.

[Kamban]

I seem to read somewhere else that that overign fund is now going to deal with only 3 currencies in bonds - Dollar, euro and pound sterling and also reduce their percentage invested in bonds and invest more in stocks.

[Kamban]

StarTrekDoc wrote:

$190,000 per citizen in Norway — ironically they are leaders in the EV adoption.

Click to expand...

I view Norway as a unethical devious country. They pump out oil like crazy and sell to the world market and  make their citizens convert more to EV vehicles by keeping gasoline prices sky high.

But at the same time they lecture the world about climate change and how we should reduce burning petroleum products. I get mad and want to cry out - " Hey ****ing Norway, if you pump out less oil from the North sea, there will be less petroleum to burn and climate change might slow down. But you don't want to do it because your greed for money overcomes your sanctimonious pompous attitude".

[Dr. Mom]

I read that their fund was basically a 60% Stock/40% Bond allocation last year.  The board voted to up its equity stake to 70%.  They aren't there yet.  I have wondered if their fund buying more in equities has been responsible for some of the resilience in our market.

[Hatton]

Just from my casual readings Norway seems to be doing a good job managing its natural resources.  Almost every other oil rich nation has squandered the wealth and left the average citizen worse off. Think Nigeria and Venezuela.  I think Saudi royalty takes care of itself and leaves the general populace unemployed and dependent on subsidies.  Norway may not be perfect but what country is.

[ITEngineer]

Kamban wrote:

I view Norway as a unethical devious country. They pump out oil like crazy and sell to the world market and  make their citizens convert more to EV vehicles by keeping gasoline prices sky high.

Oil being a global commodity based on global demand, is going to be burned regardless of who pumps it. If Norway reduces their oil production, another producer will just increase output to fill the void. As most oil producing countries aren't very smart with their windfalls, Norway sets a great example of what to do with their lottery winnings. Invest, don't squander.

Demand for oil drives it's supply, not the other way around. If there is someone that should be blamed it's all the consumption that is demanded. At least recently there are alternatives to internal combustion engines. Though if people carpooled, drove more efficient vehicles, took public transportation and lived closer to work, we could seriously dent the amount of oil that needed to be pumped out of the ground to meet our energy needs.

[Kamban]

ITEngineer wrote:

Oil being a global commodity based on global demand, is going to be burned regardless of who pumps it. If Norway reduces their oil production, another producer will just increase output to fill the void. As most oil producing countries aren’t very smart with their windfalls, Norway sets a great example of what to do with their lottery winnings. Invest, don’t squander.

Click to expand...

I agree with this part. But then Norway should not try and preach to others about climate change and using less petroleum. If you contribute to the pollution, at least keep your mouth shut.

This is akin to a cocaine producing country pumping out coke and then decrying the worldwide drug problem. They supply the drug and make the users addicted to it and then blame them for creating the demand. They could do their part and not produce the cocaine but then how else will they get the money.

[Kamban]

As you can see by now I am not a fan of Norway. Part of it is also due to its hunting endangered species like the whales. As long as they don't preach to the rest of the world about their impact on the environment I am fine with it.

 

Norway only respected the IWC's whaling ban until 1993. Using a loophole in the International Convention for the Regulation of Whaling, Norway objected to the whaling moratorium, and resumed hunting for minke whales.

Norway sets its own quota for the number of whales its whalers are permitted to kill for commercial reasons. This number has gone up and up, from being allowed to kill 671 minke whales in 2002 to more than 1,000 today. However, in recent years, less than half of this self-allocated catch limit has been taken.

Norway is now hunting a higher proportion of breeding females which could put the long-term survival of minke whales in the North Atlantic in severe danger.

[ReFinDoc]

These funds don't pay taxes. I do.