Norges Bank fund doubles investment in Sri Lankan stocks: Here’s the portfolio

In 2016, the Norwegian wealth fund increased its holdings four-fold in Distilleries, John Keells and Commercial Bank, and three-fold in Hatton National Bank

Sri Lanka’s stock market fell 9.6% in two years to December 2016, but the world’s largest sovereign wealth fund – with assets of $916 billion – increased investments here by 110% to $65 million, mostly to increase ownership in 11 stocks that the fund’s managers believe will deliver high returns in the long term. Norway’s sovereign wealth fund – called the Government Pension Fund Global and managed by its banking regulator Norges Bank – first entered Sri Lanka in 2015, investing $31 million in 12 listed companies. Despite its name, the fund does not pay pensions, but is a saving of Norway’s North Sea oil wealth. During 2016, the fund increased its holdings four-fold in Distilleries (now Melstacorp, which has interests in dairy, plantations, financial services and telecommunication), John Keells Holdings and Commercial Bank; tripled in HNB; and doubled in Access Engineering, Dialog, Sampath Bank, People’s Leasing and Teejay Lanka, a fabric maker (see graph).

However, the holding in each firm remains small, at no more than 3% of equity. Norway’s laws restrict the fund from holding more than 10% in any listed company. A detailed analysis of its Sri Lankan portfolio’s performance isn’t available; however, eight of the 12 stocks declined during the two-year period, including John Keells (down 24%), People’s Leasing (30%), Access Engineering (23%), Dialog (21%), Central Finance (17%), Commercial Bank (13%), Tokyo Cement (9%) and Melstacorp (2%). This closing prices analysis does not account for share splits, rights issues and dividends.

Norges Bank fund managers seek markets with stability and high standards of business conduct, according to the Norwegian Embassy in Colombo. “The only mandate for the Norwegian Central Bank is to safeguard and ensure further growth of the fund. Therefore, the fund’s (continued) investment in Sri Lanka is an indication of investor confidence and the potential investment opportunities available in the market,” it said in a February 2017 statement. In 2015, the fund’s largest investment here was $5 million for 0.84% in HNB, followed by $4.7 million for 0.78% in telco Dialog, $3.6 million for 0.24% in John Keells (which has interests in finance, hotels, real estate and shipping) and $2.6 million for 1.65% in construction firm Access Engineering.

By end-2016, Norges Bank increased its investment in HNB by 155% to $13 million and by 317% in Melstacorp to $10 million. It also raised its investment in John Keells Holdings by 170% to $9.7 million. While Norges Bank reduced the fund’s investment in Central Finance by 40%, it added Hemas Holdings (with interests ranging from FMCG to healthcare) to the portfolio.

The global fund holds 62.5% of assets in stocks of over 9,000

Note: This is not an analysis of Norges Bank’s Sri Lankan portfolio, only an indication of how the stocks performed in 2015 and 2016. Closing prices do not account for share splits, rights issues and dividends.

companies in 78 countries, up from 60% in 2015. Norges Bank, which manages the fund, is proposing to increase the equity allocation to 75% on the conclusion that stocks offer greater potential returns than bonds. Bond holdings are 34% of assets, while the balance is held in real estate. In 2016, the fund’s investments returned 7%, with equity up 8.7%, bonds 4.3% and real estate 0.8%.

Sixteen per cent of the fund is invested in Asia, with Japan accounting for 9% of total equity investments, China 2.7% and India 1%. Developed markets in Europe and North America are Norges Bank’s destination of choice, where 78% of assets are held. “However, this is likely to change as Norges Bank has indicated that they will shift more of their investments towards emerging economies in the future, the Norwegian Embassy in Colombo says.