Benzinga - by Neil Dennis, Benzinga Staff Writer.
If anyone needs any proof of how the landscape of investment has changed as a result of a handful of technology companies over the past decade, take a look at the world’s biggest sovereign wealth fund (SWF).
SWFs typically take a more conservative investment approach, more like pension funds, as they represent crown wealth rather than simply “other people’s money.” Norges Bank Investment Management (NBIM) is no different — or wasn’t in the past.
But things have changed in the past couple of years.
We’ve all witnessed the rise of the mega-cap stock. The Magnificent Seven of technology stocks have ridden the wave of interest in artificial intelligence development to become companies with valuations into the hundreds of billions of dollars — in some cases trillions of dollars.
These riskier spectrum assets have become the foundation of investment at NBIM in the past couple of years. Let’s look at how things have changed over the past decade.
NBIM in 2014 A decade ago, NBIM was worth $1.08 trillion and took a much more conservative approach to investment.
In 2014 the Norwegian fund allotted $665.3 billion to equity markets, or 61.8% of its total investments, while 36.5% of investments were allotted to bonds — mostly the government bonds of the U.S., Japan, Germany and the U.K.. The rest of its holdings were scattered around various real estate and infrastructure projects.
Within its equity portfolio, its top five holdings were:
Also Read: AMD Stock Worth A 27% Return If It Reclaims Recent Record Highs
NBIM in 2024 Now look at 2024. Notwithstanding high-interest rates, rising global geopolitical tensions, continuing — but receding — recession fears, suspicions of a stock market bubble and high-tech valuations, the landscape has changed dramatically. Even for a conservative institution such as the Norway SWF.
Now worth a total of nearly $1.4 trillion, a much larger 70.5% of its holdings are in equities, with just 27.1% in fixed income.
And, along with its higher allocation to equity markets, it has also raised the stakes on its top five holdings. In 2014, it allotted $8.02 billion to its top-holding Nestle, and just over $6 billion to its second Novartis.
In 2024, its top holdings are very familiar, but its allocations are vastly higher:
Wealth Fund Taking Greater Risk For Greater Returns
Magnificent SevenNorway’s sovereign wealth fund says that it invests in around 9,000 companies globally but, considering that its top five equity investments represent nearly 13% of its total $822 billion equity allocation, the rest is spread very thinly.
And so, although it claims its investments are spread to “capture global value creation and diversify risk as best as possible,” it’s taking more risk than it ever has done before with 13% of its equity exposure in one broad market segment on a single equity index in companies based in a single country.
While it has certainly come good on the value creation side of the above equation, the risk that a sudden market downturn could wipe several billions from the fund’s holdings is very real.
What’s going to drive that market downturn is difficult to predict at the moment, however, with earnings and guidance for much of the U.S. tech sector looking good, and predictions for a soft, or no, landing for the U.S. economy leading current thought. Just watch out for geopolitical developments.
Now Read: EV Makers Cheer Biden’s Electrifying Plan: UAW Demands Jobs Be Protected
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.