Norway's sovereign wealth fund, the world's largest, warned that stock-market gains may reverse as Europe's biggest equity investor said it won't use new inflows to buy more shares.
"Our share in the stock market has been stable or falling even though markets are rising, and that means in practice that we're not using inflows to buy stocks," Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said at a press conference today in Oslo. The fund is preparing for a "correction" in stock prices, he said.
The warning follows a surge in stock values that added 7.6 percent to the fund's equity portfolio last quarter. The $810 billion Government Pension Fund Global, the official name, returned 5 percent in the third quarter, representing a 228 billion kroner ($39 billion) gain, it said today. Bond investments climbed 0.3 percent and real estate holdings returned 4.1 percent, it said.
The fund has no immediate pension obligations and uses its long-term outlook to buy assets when others have to sell. After losing a record 633 billion kroner following the 2008 collapse of Lehman Brothers Holdings Inc. and ensuing global market slump, the fund raised its equity holdings by about 136 billion kroner in early 2009. In the second half of 2011, the fund bought more than 150 billion kroner in stocks as part of a strategy to invest in depressed assets.
"In general, we see market corrections more as opportunities than as threats, so it's not something that worries us," Slyngstad said today in an interview. "If they come, that's just a positive sign for us as an investor."
David Fuller's view Most investors can learn from this report. Norway's successful sovereign wealth fund takes a long-term view and sensibly invests in equities on a buy-low-sell-high basis. Come to think of it, so does Warren Buffett and some other very successful investors. I have yet to hear of a better strategy than buy-low-sell-high.
If I had just one chart per instrument to identify and monitor opportunities, it would be a 5 or 10-year weekly candlestick chart with a 200-day moving average. In either a strong or a weak market, the MA is an approximate trend mean. Therefore, clear overextensions to the upside, relative to the trend mean, represent profit taking opportunities. Conversely, clear overextensions to the downside, relative to the MA trend mean, are buying opportunities for companies that clearly remain viable.