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How Norway’s $710-billion wealth fund earned 13.4 per cent last year

The Astrup Fearnley contemporary art museum, on Oslo’s Tjuvholmen waterfront district, is pictured. It was designed by Renzo Piano, who worked on the new Shard tower in London.

Norway's sovereign wealth fund, one of the world's biggest investors, grew by around $100-billion (U.S.) in 2012, sealing one of its best years on record as it benefited from the striking upturn by stock markets.

Known as the "oil fund," it invests revenue from Norway's lucrative oil industry for the country's future. It is now worth around $710-billion, 40 per cent more than the value of the entire Norwegian economy.

The fund has been steadily reducing its assets in Europe as part of a long-term plan to move into both emerging and developed markets in Asia and the Americas – where it sees the strength of the world's economy in the years ahead.

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At the end of last year it sharply cut its holdings of bonds issued by the government of Britain and France, two countries struggling to reduce debt levels while their economies stutter.

But big gains in stock markets last year after major central banks acted to underpin their economies helped the fund return 13.4 per cent in 2012, the second-best performance since it started operating in 1996.

The fund lost 2.6 per cent overall in 2011.

"The fund's good performance is largely the factor of a good run on the stock markets," Yngve Slyngstad, its chief executive said.

Managed by Norway's central bank, the fund cut its exposure to Europe to 48 per cent of its total portfolio last year from 53 per cent. Instead, it put more into countries such as South Korea, Mexico, Australia and Japan, it said on Friday.

The fund reduced its holding of British government debt by 13 per cent in the fourth quarter. French government debt holdings fell by a quarter.

It lifted its share of Italian government debt to 26.5 billion Norwegian crowns from 24.8 billion, although this reflects a period before the uncertainty caused by recent inconclusive elections in that country.

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The fund also more than quadrupled its holding of Australian government debt.

It earned close to 30 per cent on investments in the financial sector, which also had the biggest weight in its portfolio with 23 per cent. Consumer goods, the second-biggest segment within its share portfolio, also returned a hefty 24.5 per cent.

Meanwhile, in poorly performing sectors, such as utilities and telecommunications, it only had a minimal exposure.

With the good mix, the fund's stocks earned it 0.5 per cent above its benchmark, its best performance in years.

Among its top investments, it reduced its holdings in Apple Inc. by a fifth, or around $911.60-million in three months and also sharply cut its stakes in Vodafone Group PLC, BG Group and Exxon Mobil Corp.

However, it sharply boosted its exposure to firms such as HSBC Holdings PLC and BlackRock Inc.

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Mr. Slyngstad declined to predict how the fund would invest in 2013 but said he could not rule out it would return to Europe's most troubled economies, like Greece, Portugal and Ireland, where its current exposure is now minimal.

A Reuters poll of leading investment houses in February indicated that a small majority investors believe the U.S. dollar will be the best-performing major currency this year.

The oil fund is expected to grow to $1.1-trillion by 2020 and record investments into Norway's petroleum sector indicate plenty more income to invest beyond the end of the decade.

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