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Norway’s fund buyers plan exodus from US equities

US equities have been the most popular regional equity asset class with Norwegian investors year-to-date. According to data from Norwegian fund management association VFF, Norwegian investors funnelled NOK2.4bn (€265m) into US equity funds in the year to September, with all those flows coming from institutional investors. This compares to net outflows amounting to €10.3bn in the rest of Europe over the same period.

However, Norway’s fund buyers are poised to follow the example of their European peers and desert the asset class. When our researcher visited Oslo in late October, none of the fund buyers and asset allocators he met there plan to increase their allocation to US equities over the next 12 months. Moreover, a third of them plan to reduce their exposure to the asset class. Most interviewees admitted they were anxious about the consequences of a Trump presidency on equity markets, so the exodus from the asset class is likely to be even greater given Trump’s surprise election victory.

Global equities

So where are Norway’s fund buyers going instead? Since their macroeconomic outlook is pretty robust, they do not dislike equities per se. But asset allocation is not their favourite pastime, so they are going for the asset class they historically invest most in: global equities. As global equity funds tend to have a high allocation to US equities, this implies they do not believe the prospects for the latter asset class are that bad.

 

 

This time around the popularity of global equities is really standing out. While there are more sellers than buyers for each developed market equity category, global equity funds are more popular than ever: some 44% of interviewees plan to increase their allocation over the next 12 months, while none are intending to cut their exposure. This increase in allocation comes on top of the NOK6.6bn of net inflows already seen this year.

Late EM push

 

 

Unlike their peers elsewhere in Europe, Norwegian investors have so far not been stepping up their investment in emerging market equities. But that is set to change, though president-elect Trump’s protectionist policy ideas could of course harm the economic prospects for the region and subdue enthusiasm for EM equities somewhat. Still unaware of the Damocles sword which was soon to land on their heads, several interviewees stated that being overweight to EM is a no-brainer, because growth there is simply a lot higher than elsewhere. Growth stocks look especially attractive, they believe. Also here, Norway’s investors are consistent in refraining from taking strong asset allocation decisions: they prefer taking a global approach, rather than specifically going for Asia ex-Japan or frontier market equities.

Part of the Bonhill Group.