If you’re looking for a guide on investing you could do worse than follow the example of the Norwegian Government Pension Fund Global, aka Norway’s Oil Fund.
With a value of over $700 billion, it’s the destination for the wealth produced from Norway’s petroleum sector.
Created to offset inflation and manufacturing issues that plague resource economies, its existence also aims to smooth out the effects of the inevitable decline in Norway’s oil production.
The interesting thing about the fund is its simplicity; no alternative investment schemes, hedge funds or unlisted illiquid assets in sight.
Just a basic strategy available to all investors.
Firstly, it acknowledges the risk/reward relationship in its strategy, it doesn’t aim to ‘minimise fluctuations’ as this ‘would produce a significantly lower expected return’.
With a long term focus, the GPFG is diversified across the whole world, with holdings in nearly 9000 companies and 4000 bonds.
Its asset allocation is balanced, with 60% of its assets in shares and 40% in bonds, with 5% of the bond portfolio in real estate.
These asset allocations are maintained with disciplined rebalancing.
The GPFG buys shares or bonds when they’ve fallen to maintain the 60/40 holding and sells when they’ve risen and skewed the 60/40.
This removes emotion from the equation, so it automatically buys low and sells high.
It keeps costs down, with an annual range of 0.8% to 1.4% and the return last year was 13.4% with an average of 4% since 2000.
While an average of 4% since 2000 may not seem spectacular, it’s impressive given the fund’s world-wide focus and more defensive 60% bond allocation until 2007.
Over the same period US shares (S&P 500) and International shares (MSCI World) have offered significantly poorer returns.
Despite a multi-generation timeline, the average investor and the GPFG can achieve the almost the same outcomes because they can both employ exactly the same strategy.
Maybe it’s time to start thinking ‘what would Norway do?’
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Wondering who to trust with your financial affairs? We ‘re one of six fiduciary financial planners in Australia.
