Market

The war in Ukraine and inflation fears lead to a very weak first half of the year for world equity markets. By the end of June, the MSCI World Index was down 20,5 percent. The second half of 2022 was also volatile; after a partial rebound in July and August, equity markets reached a new bottom in October (MSCI World -25,7 percent), but had a strong finish to the year and ended down 18,1 percent. Looking at the last two years together, the equity market has been nearly flat (-0,3 percent). However, return dispersion has been significant, as growth stocks had a very weak 2022; the return differential between value and growth stocks were 23 percent when looking at the world index. Geographically, returns differentials were more modest; US stocks (S&P500) were down 18,1 percent, MSCI Asia Pacific ex Japan -17,5 percent and MSCI Europe (USD) -15 percent.

Fixed income was not a safe haven in 2022. US government bonds with 20+ years duration fell 31 percent, while bonds with a 7–10-year duration fell 15,2 percent. US Investment Grade credit (9-year duration) ended down 17,9 percent. The energy sector returned a solid 47,7 percent and was the only sector in the equity market with positive return. Conversely, the more growth-oriented sectors such as Communication services (-36,7 percent), consumer discretionary (-33,1 percent) and IT (-30,6 percent) had a very weak year. Despite the war in Ukraine, the oil price rose only a modest 10,5 percent in 2022. Recession fears on the back of higher interest rates, the Covid situation in China as well as unusually warm weather, contributed to a decline in oil and gas prices toward year end. The US Dollar index strengthened 8,2 percent whilst the Norwegian Kroner weakened 10 percent against the USD. The Norwegian equity market ended the year on a strong note, with the OBX Index (top 25 stocks) rising 2 percent for the year. However, the commonly used OSEFX (Fund index), where Equinor is capped to a 10 percent weighting, ended down 7,1 percent.

Activity and results

The business area had a total return of -15,3 percent (USD). Due to the strengthening US Dollar, the return in Norwegian Kroner was -5,3 percent.

The purpose of the Global Equity mandate is to invest in attractive markets through long-only equity funds that complement Ferd’s direct investments. At year end, the mandate comprised four themes: Asia, constituting 38 percent of assets under management, US Centric (23 percent), Technology (8 percent) and the Green Shift (31 percent).

Global Equity returned -22,6 percent, underperforming the mandate’s benchmark index by 2,3 percent. The underperformance can partly be attributed to the mandate’s orientation towards quality and growth stocks.

The Green Shift fell the least of the four themes (-16,7 percent), and had solid outperformance versus the theme index. The investments within energy transition had significantly better returns than the environmental oriented part of the portfolio. Within the former, renewable energy stocks within the solar value chain as well as renewable energy producers stood out on the positive side. Technology and US Centric have the strongest growth orientation within Global Equity, and had the weakest return for the year, down 32,6 percent and 30,2 percent respectively. The Chinese equity markets had a very strong end to the year on the back of the Party Congress and reopening of the Chinese society; After being down almost 32 percent at the end of October, the Asia portfolio rose 16,7 percent and ended 2022 with a return of -20,3 percent.

Global Fund Opportunities consists of fund investments which offer attractive absolute return and that deploy investment strategies that have lower correlation to the development in equity markets than long-only equity funds. The mandate fell 4,9 percent (USD) in 2022. The illiquid fund investments fell 20,3 percent, primarily driven by the US focused investments, which had strong performance in 2021. The liquid investments on the other had solid performance, returning 13,8 percent, and was driven by the two multi-strategy funds, which rose 32,2 percent. Among the liquid equity investments, returns were more mixed, with the US focused manager ending flat on the year and the Asian focused manager being down in line with the Asian markets.

Allocations

Following the significant decline in equity markets, it was decided to allocate 500 MNOK to Global Equity in May. The capital was allocated across the four themes based on an overall assessment of Ferd’s total investment portfolio and the themes’ deemed attractiveness.

At the end of 2022, assets under management were 7,28 billion NOK, of which 4,03 billion in Global Equity and 3,25 billion in Global Fund Opportunities, and was split among 17 different fund managers.