The fund’s equity investments are spread across the world to capture broad gains in stock markets.
The fund is in the process of moving toward regional market capitalisation weights for equity investments. Its largest geographic exposure is to Europe and North America, followed by developed markets in Asia and Oceania and emerging markets.
Equity investments are in a wide range of sectors. The overall sector exposure is based on market capitalisation. NBIM also targets bigger stakes in selected companies and markets that are expected to outperform over time.
Investments are limited to companies listed on regulated stock exchanges or in companies where the board of directors has said it intends to seek a listing on a bourse. The fund has an upper limit of 10 percent on ownership in any given listed company.
Market exposure strategies
The fund’s stock investments take the FTSE Global All Cap Index as a starting point. This was set as a reference by the Ministry of Finance.
Emulating the composition of a benchmark index is known as an indexing strategy. Investments will generally be spread across the same regions and sectors, and in the same proportion as the benchmark index. This can range from pure indexing, when a fund manager exactly replicates the composition of a benchmark, to a more flexible approach. NBIM uses a more active strategy to enhance performance and beat the return on the benchmark. A large share of the fund’s equity investments are managed using this type of strategy.
NBIM seeks to identify investment opportunities in select companies in targeted industries. Portfolio managers are given mandates to invest in listed companies in a specific industry or market. Each manager analyses stocks to find investments with the potential for good returns over time.
NBIM also seeks to take bigger stakes in large companies with the potential for good long-term returns. Using this strategy, the fund may seek to take positions in special situations such as new share sales, changes to capital structures and in companies planning to be listed on exchanges. These investments will typically be held for several years.
NBIM awards equity investment mandates to external managers with expertise in specific markets. These mandates are in markets and segments where it is not expedient to build internal expertise and where there is considerable potential to outperform the market. External equity mandates will typically be for investments in emerging markets or narrowly defined segments of developed markets.