What's going on?

Not everyone knows it, but the state of Norway is one of the world�s biggest investors – and it looks set to buy a whole lot more stocks. (tweet this)

What does this mean?

Norway runs what�s called a �sovereign wealth fund,� which is exactly what it sounds like: an investment fund that manages the country�s savings. After decades of steadily saving away a portion of the income from the country�s once-booming oil industry, Norway has built up the world�s largest sovereign wealth fund (there�s a lesson in that approach�). On Tuesday, an influential advisory panel suggested the fund increase the amount of stocks it owns by almost 20% (in return it would sell bonds that it owns). If enacted, that would mean Norway would end up buying almost $90 billion of stock, which is about 0.1% of the total outstanding value of stocks globally!

Why should I care?

The bigger picture: This is a textbook example of how low interest rates lead to investing in riskier assets.
The interest rates available from bonds are so low right now that they will likely drag down the overall performance of Norway�s fund too much. The proposed solution is to switch into stocks, which should (in theory) provide Norway with a higher return. However, stocks are usually much riskier (their value typically goes up and down more aggressively). A similar decision is being made on a larger scale all over the world: low interest rates are pressuring investors to move into (supposedly) riskier investments, like stocks.


For the market: This is why all the talk about rising interest rates is important.
If stock prices have been driven higher in recent years primarily due to low interest rates (as many investors argue they have), then the prospect of interest rates going back up is an important risk for investors to consider (and interest rates, as represented by bond yields, have recently been moving higher).