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World’s Largest Sovereign Wealth Fund Slashes Gunmaker Stakes

Courtesy of ZeroHedge. View original post here.

With stocks enjoying one of their best years this cycle in 2017, it will probably not come as a surprise that the world’s largest sovereign wealth fund, the $1.1 trillion Norges Bank Investment Management, had ample reason to party: on Tuesday, the Oslo-based Norwegian Sovereign Wealth fund announced it had made more money in 2017 than in any other previous year in its history – the 2017 return was equivalent to $131 billion, roughly $358 million per day, and a whopping 13.7% return.

Owning on average 1.4% of the world’s listed stocks, the fund, which like the Swiss National Bank, largely follows indexes has some leeway for some active management. It’s also in the process of double down on merging its fate with that of the global stock market, and is in the process of raising the share of stocks in its portfolio to 70% to improve returns even more.

The fund’s stock portfolio rose 19.4% in the year, while fixed income investments gained 3.3% and real estate grew 7.5%. It held 66.6% in stocks at the end of 2017 – a number which will rise to 70% in the coming months – 30.8%in bonds and 2.6% in real estate.

And, just like the SNB, its biggest equity investment in 2017 was Apple followed by Nestle SA and Royal Dutch Shell Plc, while its largest fixed income holdings were U.S., Japanese and German government bonds.

Discussing the fund’s results, CEO Yngve Slyngstad acknowledged that the fund’s growing exposure to the stock market means that returns may be more volatile in the future.

It won’t however, have gunmakers to blame, because as the FT reports while the fund was adding billions in stock to current and new positions, the world’s largest sovereign wealth fund was sharply reducing its stakes in the three largest listed gunmakers in the US amid the growing debate over how investors should react gun control and mass shootings.

Specifically, the Norwegian sov. wealth fund cut its stake in American Outdoor Brands (fka Smith & Wesson) by almost 90 per cent during last year. As of December 31 2017, the fund owned just 0.15% of the company.

In addition, the fund – Government Pension Fund Global – almost halved its stake in Sturm Ruger, another iconic US gunmaker, to 1% while it cut its holding in Vista Outdoor by a quarter to 0.7% .

The fund only discloses its ownership positions once a year and noted that the reduction took place in 2017, before the recent debate sparked by the killing of 17 in a shooting at a Florida school earlier this month.

While he was happey to discuss other aspects of his business, CEO Slyngstad was tight lipped when commenting on the individual company sales, but stressed that the fund had “not put these companies on a divestment route.” It must have just happened by accident then…

Quoted by the FT, he said that “we don’t have a deliberate strategy with regards to gun use because this is not a sector that we are covering in our security selection strategies. Our changing ownership in these companies will be an effect of quantitative strategies more than any specific analytics.”

Which is odd, considering that despite the lack of a “discretionary” decision, the Norges Bank’s investment fund saw its gunmaker holdings tumble to almost nothing.

To be sure, the sensitive topic of whether or not to hold gunmaker shares is not new: while the fund is barred from owning a number of companies based on the products they make, from nuclear weapons and coal to tobacco and cluster munitions, it has previously proposed excluding oil and gas companies from its portfolio, but Slyngstad said any decision on gunmakers would be for the council of ethics, an independent body, to take, not the fund itself.

Semantics acrobatics aside, it appears that the decision had already been quietly made, and follows the active campaign by BlackRock, the world’s largest asset manager and also the biggest shareholder in American Outdoor Brands and Sturm Ruger, to speak to gunmakers “to understand their response” to the school shooting but did not say whether it would reduce its stakes.

State Street, another large US investor, said it would talk to gunmakers “to seek greater transparency from them on the ways that they will support the safe and responsible use of their products”.

Finally, despite what appears to be a surge in demand and interest for guns, which we expect will translate in record top and bottom lines for gunmakers…

… the threat of continued gunmaker stock liquidations continues to depress the space, and as of this morning, gunmaker stocks saw continued selling pressing dragging them lower by over 5%.


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