The Norwegian Oil Fund is truly impressive. It might even be the crown jewel of the whole Norwegian economy.
The fund was created in 1990 as a way for Norway to invest surplus revenues from the nation’s oil and gas sector. The government wanted to ensure revenues from the oil business – a non-renewable resource – would be an asset for all Norwegians in the future.
The Oil Fund then used that capital to invest in a diverse portfolio of global equities, bonds, and real estate. It has quietly grown to become one of the world’s top sovereign wealth funds, recently surpassing US$1 trillion in assets. That’s a value of approximately US$200,000 for every man, woman, and child in Norway.
No, that’s not a typo. It turns out Norway is one of the biggest players in the institutional wealth sector in the entire world. Who would have predicted that?
The Oil Fund is a big investor in Canada, with approximately US$28 billion spread about equally between Canadian stocks and bonds. The stock portfolio features investments in approximately 210 different companies.
Every Canadian investor should be paying attention to what the Norway Oil Fund does in Canada. You can easily copy its top investment ideas for your TFSA and do pretty well. Let’s take a closer look at three of its top holdings.
Royal Bank of Canada
It’s little surprise Royal Bank of Canada (TSX: RY)(NYSE: RY) is one of the Oil Fund’s top Canadian holdings, with a position worth approximately US$1 billion at the end of 2018. After all, it is widely regarded as the best Canadian bank.
It seems like everything CEO David McKay and his team touches turns to gold. The company’s Canadian operations are fantastic, and the bank is comfortably the largest in Canada. It has strong market share in everything from mortgages to credit cards to wealth management. The capital markets division is good too, with the company’s investment bank growing to be one of the top in the world.
And then there’s the U.S. division, which is growing strong organically. Royal Bank is also taking advantage of the fragmented banking system in the world’s largest economy to expand there, gobbling up new assets every few years. With the U.S. economy still looking strong over the long term, look for Royal Bank to continue expansion plans there.
In the meantime, investors get to collect a 4% dividend, a payout with an excellent history of growth. Just think, some US$40 million worth of Royal Bank dividends alone flow back to Norway each year.
Brookfield Asset Management
One of the Oil Fund’s largest investments outside of the major banks is in Brookfield Asset Management (TSX:BAM.A)(NYSE: BAM), a stake worth US$324 million at the end of 2018.
Brookfield’s business model is incredibly smart. The company raises long-term capital through various exchange-traded vehicles, with each one focused on one particular sector or industry. It takes a big ownership stake in these vehicles to send a very important message to investors. It then benefits twice when these organizations succeed – by both increasing the value of its ownership stake and by increasing its management fees.
Revenue has skyrocketed over the last few years, increasing by some 150% since 2016. Look for this growth to continue as more institutional money seeks out Brookfield and its unique approach.
Teck Resources
It might seem a little odd that the Oil Fund had a US$280 million stake in Teck Resources (TSX: TECK.B)(NYSE: TECK) at the end of 2018. That was a more than 2% position in the mining giant, while it limited its exposure to an average of 1% of the typical Canadian company in the portfolio. In other words, it took a big oversized position in Teck.
I suspect the aggressive position size is due to the company’s big mining production, specifically metallurgical coal, copper, and zinc. It also has an interest in Fort Hills, a significant oil sands project. These are important assets to own over the long term, something that many investors have ignored because they’re either bearish on coal or don’t like investing in commodity businesses.
Teck has a solid balance sheet, ambitious long-term growth plans, and it continues to generate plenty of earnings. Despite this, shares are off approximately 33% so far in 2019. Seems to me this might be a buying opportunity.
