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Olso. – Norway’s sovereign wealth fund, the world’s largest, reported its weakest return in more than a year as its investments were dragged down by turmoil in Europe.
The Government Pension Fund Global rose 0,1 percent in the quarter, its smallest return since mid-2013, the Oslo-based investor said yesterday.

The $860 billion fund’s stock holdings declined 0,5 percent, while its bonds returned 0.9 percent. Real estate returned 1,5 percent.

“Two quarters of strong returns were followed by a virtually flat quarter,” said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, which runs the fund.

“Increased geopolitical uncertainty in the vicinity of the euro area contributed to a negative return.”

Slyngstad warned it will become more difficult for the fund to generate high returns as interest rates have plunged amid sluggish global economic growth.

A slump in equities in the quarter came amid evidence of slowing growth and as the world prepares to wean itself off Federal Reserve stimulus. Energy stocks plunged amid a decline in crude prices.

The fund lost 4,3 percent on its stock holdings in Europe, which represented 43,6 percent of its equity portfolio. Its North American stocks gained 3,4 percent, while equity holdings in Asia and Oceania rose 2.3 percent.

The US “emerged as the global growth engine, and US stocks produced a positive return,” Slyngstad said.

“The negative overall return on equities was cancelled out by a positive return on the fund’s fixed income investments.”

The fund reported a shortfall in 2011 when it lost 2,5 percent after experiencing the weakest returns in its history in the third quarter as the euro area’s debt crisis escalated.

The investor, which gets its guidelines from the government, held 61,4 percent in stocks at the end of September, up from 61,3 percent in June.

Bond holdings fell to 37,3 percent from 37,6 percent and it held 1.3 percent in real estate. It’s mandated to hold 60 percent in stocks, 35 percent in debt and 5 percent in properties.

While the investor mostly follows global indexes, it has some leeway to stray from those benchmarks.

It held 12,9 percent of its fixed-income investments in emerging markets at the end of the quarter, up from 12 percent at the end of 2013.

Russian ruble exposure was reduced to 1,1 percent amid falling investments.

The overall return missed the benchmark set by Norway’s Finance Ministry by 0.5 percentage point.

The fund’s largest stock holding was Nestle SA followed by Royal Dutch Shell Plc. The biggest bond holdings were in US Treasuries, Japanese and German government bonds.

The biggest government bond increases in the quarter were in Japanese, Indian and Austrian bonds, while the biggest decreases were in government bonds issued by the US, France and Germany, the fund said.

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA, the country’s largest energy company. – Blommberg.