Investment strategy

The investment strategy has evolved over time on the basis of expert reviews, practical experience and in-depth analysis. Major changes require parliamentary approval. The investment strategy aims to take advantage of the fund's long-term horizon and considerable size to generate strong returns and safeguard wealth for future generations.

Investment mandate

The investment strategy for the fund is expressed in a management mandate issued by the Ministry of Finance. The mandate specifies which markets the fund can be invested in, and how much can be invested in the different asset classes, equities, bonds, unlisted real estate and unlisted renewable energy infrastructure. The return on the fund is measured against a benchmark index defined in the mandate. The mandate also sets out how much and what types of risk Norges Bank can take in its management of the fund, and various other requirements for how the fund is to be managed. Norges Bank Investment Management manages the fund transparently and responsibly with the aim of achieving the highest possible return after costs within the constraints imposed by the mandate from the Ministry.

The benchmark index plays a key role in the management of the fund. The index is constructed on the basis of indices from FTSE Russell Group (equities) and Bloomberg Barclays (bonds). The strategic benchmark index consists of equities and bonds with fixed weights of 70 and 30 percent respectively. Norges Bank then constructs a portfolio that differs somewhat from the benchmark in order to exploit the fund’s special characteristics and competitive advantages (for example by investing in real estate and renewable energy infrastructure), meet the mandate’s requirements in areas such as environment-related investments and countries’ fiscal strength, and ensure cost-effective management of the fund. This deviation from the benchmark index is limited by a ceiling for expected relative volatility, or tracking error, of 1.25 percent.

Equity prices and bond prices will normally move differently, causing the equity share in the benchmark index to vary from the fixed weight of 70 percent. The mandate sets a limit for this drift of 2 percentage points before rebalancing is required back to the 70 percent target.  

Investment strategies

The Executive Board’s strategic plan sets out which strategies Norges Bank Investment Management is to employ in its management of the fund. We keep the fund close to the benchmark, but all of our investment strategies also have active components. We use a variety of strategies to manage the fund with acceptable risk and within the constraints imposed by the mandate. These strategies are complementary and tailored to the fund’s risk tolerance and our unique characteristics as a large, long-term investor with limited short-term liquidity needs and low management costs.

Our investment strategies are grouped into three main categories: market exposure, security selection, and fund allocation. We report risk and performance according to these three main strategies. These strategies are pursued across equity, fixed income, and real asset management.  

Returns and cost is disclosed with a split by investment strategies in our annual report, including split between external and internal managers.

Equity investments

The fund is a large, global investor in equity markets. Our investment strategies rest on two pillars: efficient market exposure and fundamental research.

We do not classify our strategies as passive or active. We manage the bulk of our equity portfolio internally through strategies for efficient market exposure. None of our investment strategies are 100 percent passive. We invest broadly in the companies in the benchmark but seek to avoid mechanical benchmark replication with its high trading costs. Given our size and global reach, it is essential to manage our market exposure and trade efficiently.

We are one of the world’s largest shareholders. In-depth knowledge of our largest equity investments helps us achieve our goal of the highest possible return after costs. This improves risk management and enables us to fulfil our ownership role. We believe that our active management improves our ability to be a responsible investor.

Fixed-income investments

The fund is invested in a broad range of bonds from government and corporate issuers, and our investment strategies are tailored to these segments. The strategies aim to build cost-effective portfolios with exposure to key risk drivers, while also seizing opportunities at the security, issuer and sector level.

Real assets investments

We invest in real estate and infrastructure to improve diversification. These investments include both listed and unlisted real estate, and unlisted renewable energy infrastructure. The mandate lays down important strategic guidelines for investments in real assets, including how much of the fund can be invested in these asset classes. The mandate permits us to invest up to 7 percent of the fund in unlisted real estate and up to 2 percent in unlisted renewable energy infrastructure.

We aim to build up a real estate portfolio of up to 5 percent of the fund, managed under a combined strategy for listed and unlisted investments. We will also gradually build up the renewable energy portfolio, investing mainly in wind and solar power. The focus will be on projects with reduced power price risk, stable cash flows and limited risk to the principal investment.