RETURN AND RISK GOVERNMENT PENSION FUND GLOBAL PRESS SEMINAR OSLO, 6 MARCH 218
Extended information in three publications 2
1 2 INVESTMENTS 1.1 The fund s investments 2 1.2 Benchmark index 1 1.3 Reference portfolio 18 RETURN 2.1 Return 26 2.2 Relative return 34 2.3 Return and cost 46 3 RISK 3.1 Risk 5 3.2 Relative risk 54 3.3 Risk adjustments 6 APPENDIX Factor and risk-adjusted returns
Management of the fund Market Market index Ministry of Finance Reference index Norges Bank Investment Management Reference portfolio Actual portfolio Source: Ang et al (214). Norges Bank Investment Management 4
INVESTMENTS 5
Reference portfolio adjustments for equities Over-weighted stocks. Percent (chart 5 and 6) 6 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 12 13 14 15 16 17 12 13 14 15 16 17 Systematic factors Universe expansion Free float 6
Reference portfolio adjustments for fixed income Over- and under-weighted bonds. Percent (chart 7 and 8) 7 1 2 3 4 5 6 1 2 3 4 5 6 12 13 14 15 16 17 Emerging markets 1 2 3 4 5 6 1 2 3 4 5 6 12 13 14 15 16 17 Fiscal strength
Contributions from equity adjustments Versus the benchmark index. Percentage points (chart 9 and 1) 1. 1. 1. 1..5.5.5.5.... -.5 -.5 -.5 -.5-1. 12 13 14 15 16 17 Systematic factors -1. -1. 12 13 14 15 16 17 Universe expansion Free float -1. 8
Contributions from fixed-income adjustments Versus the benchmark index. Percentage points (chart 11 and 12) 1. 1. 1. 1..5.5.5.5.... -.5 -.5 -.5 -.5-1. -1. -1. -1. -1.5-1.5-1.5-1.5-2. 12 13 14 15 16 17 Emerging markets -2. -2. 12 13 14 15 16 17 Fiscal strength -2. 9
Return impact of ethical exclusions Equities. Percentage points (chart 4) 1. 1..5.5. -.5-1. -1.5. -.5-1. -1.5 Conduct-based exclusions Product-based exclusions Total -2. -2. -2.5 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17-2.5 1
Contribution to return impact Equity benchmark index exclusions by exclusion criterion (table 12) Criterion Number of excluded companies from benchmark Market value in benchmark if not excluded 217 26-217 annualised Product-based exclusions 98 159 -.2 -.1 Production of specific weapon types 19 62 -.18 -.5 Production of tobacco 17 69.13 -.5 Thermal coal mining or coal based power production 62 28.4. Conduct-based exclusions 27 43 -.8.4 Serious or systematic human rights violations 2 12 -.4 -.1 Serious violations of the rights of individuals in situations of war or conflict 1.. Severe environmental damage 19 29 -.4.4 Gross corruption 1.. Other particularly serious violations of fundamental ethical norms 4 2.. Total 125 22 -.1 -.6 11
RETURN 12
13.7 percent return Annual absolute return on the fund. Percent (chart 1) 3 3 2 13.7% 2 1 1 6.1% Annual return -1 217 13.7% -1 Accumulated annualised return since 1998-2 Last 1 years 6.2% Since 1998 6.1% -2-3 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17-3 13
Absolute return key figures Currency basket. Annualised. Percent (table 15) Since 1.1.1998 Last 1 years Last 5 years 217 Return on equity investments 1 6.15 5.96 12.94 19.44 Return on fixed-income investments 4.76 4.4 2.96 3.31 Return on unlisted real estate investments 2 8.3 7.52 Return on fund 6.9 6.16 9.26 13.66 1 Since 1.1.1999. 2 Includes listed real estate investments from 1 November 214 to the end of 216. 14
Fund return Measured in different currencies. Annualised. Percent (table 18) Since 1.1.1998 Last 1 years Last 5 years 217 Currency basket 6.9 6.16 9.26 13.66 Norwegian Krone 7.5 9.24 15.84 13.95 US Dollar 6.45 4.85 7.26 19.92 Euro 1 5.98 6.94 9.28 5.33 British Pound 7.54 8.98 11.27 9.54 1 Euro was introduced as currency on 1.1.1999. WM/Reuters Euro rate is used as estimate for 31.12.1997 15
The fund s real return Measured in the fund s currency basket. Annualised. Percent (table 17) Since 1.1.1998 Last 1 years Last 5 years 217 Fund return (nominal) 6.9 6.16 9.26 13.66 Annual inflation 1.77 1.65 1.3 1.83 Annual management fees.9.8.6.6 Real return 4.16 4.36 7.81 11.55 16
Positive relative return Quarterly relative return of the fund. Percentage points (chart 15) 2.5 2. 1.5 1..5. -.5-1. -1.5-2. 2.5 2. 1.5 1..5. -.5-1. -1.5-2. Quarterly relative return Accumulated annualised relative return -2.5 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17-2.5 18
Relative return Currency basket. Annualised (table 27) Since 1.1.1998 Last 1 years Last 5 years 217 Relative return on fund (percentage points) 1.28.15.29.7 Relative return on equity management (percentage points) 2.51.2.42.79 Relative return on fixed-income management (percentage points).15.2 -.2.39 1 Includes real estate management from 1.1.217. Relative return prior to 217 is calculated on the equity and fixed-income management only. 2 Equity management since 1.1.1999. 18
Contributions to relative return 217 Percentage points (table 29) Equity management Fixed-income management Real estate management Allocation Fund allocation.1.8.3.1.22 Internal reference portfolio.13.1.1.23 of which systematic factors.2.2 of which universe expansion -.1.8.8 Allocation decisions -.3 -.2. -.4 Real estate.3.3 Unlisted real estate.2.2 Listed real estate.1.1 Security selection.43 -.3.4 Internal security selection.22 -.3.19 External security selection.21.21 Asset management -.4.1.3.8 Asset positioning -.9.8.3.2 Securities lending.4.2.6 Total.49.14.3.4.7 Total 19
Contributions to relative return 213-217 Annualised. Percentage points (table 3) Equity management Fixed-income management Real estate management Allocation Fund allocation -.1 -.1.1.3 -.7 Internal reference portfolio.1 -.9. -.8 of which systematic factors.2.2 of which universe expansion. -.5 -.5 Allocation decisions -.2..3.1 Real estate.1.1 Unlisted real estate.. Listed real estate.. Security selection.14 -.1.14 Internal security selection.3 -.1.2 External security selection.11.11 Asset management.13.8.1.22 Asset positioning.8.8.1.16 Securities lending.5.1.6 Total.27 -.2.1.4.29 Total 2
Management cost per asset class Basis points (chart 18) 25 25 2 2 15 1 15 1 Equity Fixed Income 5 5 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 21
Management costs per investment strategy 217. Basis points (table 31) Contribution to the fund's management costs Management costs based on assets under management Fund allocation.9 of which unlisted real estate.6 23.3 Security selection 2.9 13.8 Internal.7 4.3 External 1 2.2 46.6 Asset management 2.2 3. Total 6. 1 Includes all externally managed capital. 22
RISK 23
The fund s equity exposure Percent (chart 2) 7 7 65 65 6 6 55 55 5 5 45 45 4 4 35 35 3 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 3 24
The fund s equity exposure vs market Percent (chart 2) 7 7 65 65 6 6 55 5 55 5 Equity exposure 45 4 45 4 Equity market share 35 35 3 99 1 3 5 7 9 11 13 15 17 Source: MSCI World index and Bloomberg BGA/NBIM calculations 3 25
Annual return of 7/3 portfolio Hypothetical. US dollars. Percent (chart 22) 7 6 5 4 3 2 1-1 -2-3 -4 19 192 194 196 198 2 Source: Dimson, Marsh and Staunton s world return time series 7 6 5 4 3 2 1-1 -2-3 -4 Equity contribution 7 equity/3 fixed income 26
1-year rolling return of 7/3 portfolio Hypothetical. Annualised. US dollars. Percent (chart 24) 2 2 15 15 1 1 Equity contribution 5 5 7 equity/3 fixed income -5 19 192 194 196 198 2 Source: Dimson, Marsh and Staunton s world return time series -5 27
Expected absolute volatility Percent (chart 25) 3 3 25 25 2 2 15 15 1 1 5 5 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 28
Expected relative volatility Basis points (chart 27) 16 16 14 14 12 12 1 1 8 8 6 6 4 4 2 2 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 29
Return on the fund and the benchmark index Currency basket 6% 5% 4% 3% 2% Fund Benchmark index 1% % 12 13 14 15 16 17 3
The fund s benchmark overlap Percent (chart 29) 1 9 8 7 6 5 4 3 2 1 1 9 8 7 6 5 4 3 2 1 Fixed-income asset class Equity asset class 7 8 9 1 11 12 13 14 15 16 17 31
Expected relative volatility by strategy Basis points (table 38) Equity management Fixed-income management Real estate management Allocation Fund allocation 17 1 22 1 28 Internal reference portfolio 13 1 1 15 of which systematic factors 1 8 8 of which universe expansion 12 9 14 Allocation decisions 6 2 6 Real estate 22 22 Unlisted real estate 16 16 Listed real estate 9 9 Security selection 13 1 13 Internal security selection 1 1 1 External security selection 6 6 Asset management 7 4 8 Asset positioning 7 4 8 Total 23 12 22 1 33 Total 1 A considerable part of the exposure against systematic factors will in 218 be managed and reported in a separate substrategy. 32
Expected relative volatility and shortfall Basis points (table 42) Expected relative volatility Expected relative volatility Expected shortfall 3-years price history 1-years price history 1-years price history Fund allocation 28 37 117 Internal reference portfolio 15 17 43 of which systematic factors 8 8 24 of which universe expansion 14 14 4 Allocation decisions 6 7 19 Real estate 22 32 17 Unlisted real estate 16 22 7 Listed real estate 9 17 54 Security selection 13 14 37 Internal security selection 1 12 3 External security selection 6 7 19 Asset management 8 13 44 Asset positioning 8 13 44 Total 33 46 149 33
Intercept, bps annualised Market (MKT) Small vs Large (SMB) Cheap vs Expensive (HML) Profitable vs unprofitable (RMW) Conservativ e vs Aggressive Investment (CMA) Variance explained in percent (R squared) Regression analysis of relative return Equity management. In US dollars. Before management costs (table 49) Regression coefficients Sample period Since 1.1.1999 37.2.5 -.1.1 -.2 45 Last 1 years 24.2.3. -.2 -.4 45 Last 5 years 26.2.2.1 -.2 -.3 35, Kenneth French. Bold indicates significance at 5 percent confidence level. 34
RETURN AND RISK GOVERNMENT PENSION FUND GLOBAL PRESS SEMINAR OSLO, 6 MARCH 218