Norway’s sovereign wealth fund sold all its Irish and Portuguese government bonds after rejecting the Greek debt swap and warned that Europe faces considerable challenges.
The US$610 billion Government Pension Fund Global returned 7.1 percent, or 234 billion kroner (US$41 billion), as measured by a basket of currencies, in the first quarter, the Oslo-based investor said on Saturday. Its equity holdings gained 11 percent while its fixed-income investments rose 1.6 percent.
The fund, which voted against Greece’s debt swap this year because it disagreed with being subordinated to the European Central Bank, also said it reduced debt holdings in Italy and Spain amid a broader strategy to cut investments in Europe. The fund added government bonds from emerging markets such as Brazil, Mexico and India.
“Predictability is important for a long-term investor and the euro-area faces considerable structural and monetary challenges,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said in a statement.
Stocks jumped globally in the quarter after the European Central Bank stepped in with more than US$1 trillion in three-year loans to the region’s banks. The rally was tempered toward the end after Spain announced in March it would miss a deficit target and as austerity measures dragged eurozone economies into a recession and boosted unemployment to a 15-year high.
Greece pushed through the biggest sovereign debt restructuring in history in the period, with private investors writing off more than 100 billion euros (US$131 billion) of debt. That decision spurred European finance ministers to approve a second bailout package for the nation of 130 billion euros.
The fund said that it held 1.3 billion kroner in Greek bonds before the debt swap. Its holdings in Italian government debt fell to 26.6 billion kroner from 33 billion kroner at the end of last year, while Spanish debt declined to 15.6 billion kroner from 18 billion kroner.
“It is not only those five countries, but in addition we are looking at the situation as a whole,” Slyngstad said in an interview.
“We are concerned about the situation in the euro area,” he said. “In many countries there are macroeconomic challenges.”
The fund’s investments in euro-denominated government bonds declined to 39 percent of the fund at the end of March from 43 percent at the end of last year. The holdings returned 2.9 percent in local currency in the quarter, the fund said.
“We have sold proportionally more of government bonds in southern Europe than in other countries,” he said. “This has been a process that has been going on for two years.”
Irish bonds have returned 11.55 percent so far this year, while Portuguese bonds have gained 19 percent, according to broad market indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. All eurozone bonds returned 3.9 percent, according to Bloomberg indexes.