Norway’s wealth fund seeking to narrow bond portfolio

REUTERS: Norway’s US $990 billion sovereign wealth fund, the world’s largest, this week proposed to streamline its fixed-income portfolio by shortening maturities and cutting corporate bonds and some 20 currencies from the benchmark it tracks.

If approved by Norway’s Finance Ministry, the changes would leave only government bonds in U.S. dollars, euros and British pounds as part of the index, which already represents more than 80 percent of the fund’s fixed-income investments.

The switch would reduce transaction costs and volatility, while having little impact on overall risk, the Central Bank, which manages the fund, wrote in a letter to the ministry.

The change would not trigger immediate asset sales, but could lead to a gradual move away from the currencies that are cut from the benchmark, including bonds denominated in Japanese yen, Canadian dollars, Swedish crowns and Swiss francs, it said.

The fund’s focus has gradually shifted away from government bonds, which represented 100 percent of its holdings in the 1990s and now stand at 32 percent. The plan is to shrink this further in the years to come to give the equities portfolio room to grow.