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$1tn Norwegian oil fund plans to ditch oil and gas stocks

$1tn Norwegian oil fund plans to ditch oil and gas stocks

Norway's trillion-dollar sovereign wealth fund is proposing to drop oil and gas companies from its benchmark index.

The sovereign wealth fund, fuelled by the state's oil revenues which have dropped sharply in recent years, is now worth around 8.24 trillion kroner (854 billion euros, $1 trillion), invested primarily in shares (65.9 percent) as well as bonds and real estate.

Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe".

The fund said it doesn't expect returns or market risk to be affected "appreciably" by its proposal, emphasizing that cutting exposure to the energy industry would allow it to crank up investments in other sectors.

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector", said Deputy Governor Egil Matsen in a press release.

Norway's largest private pension by value said that if the fund did ditch oil and gas stocks, the action could influence other investors. It invests Norway's revenues from oil and gas production in stocks, bonds and real estate.

"Nothing is imminent and even if the advice is fully implemented we believe this will have limited impact on the oil and gas producers, as the holdings of Norges Bank are relatively small and no doubt will be disposed of over an extended time frame", she said. It also has shares worth more than $1bn in oil services firm Schlumberger and Italy's Eni, whose share price slumped 0.86%.

The aim of the proposal is to make Norway's wealth less vulnerable to a permanent drop in oil prices, especially at a time when the fund is increasing the proportion of its portfolio it invests in equities to 70 percent from 60 percent previously.

But Norges Bank said that investing money back into the energy sector meant the government's exposure to the price of crude was too high, particularly given the country's majority stakes in Statoil ASA.

"That would mean buying more stocks in the oil and gas sector", said Matsen. However, it made clear that its recommendation involved divesting from existing oil and gas shares as well as ruling out future investments.

The Norwegian government said it would consider the proposal, but a decision should not be expected until next year and a "thorough assessment" was required.

And analysts warned that the central bank's proposal could have a knock-on effect on the sector.