The subject of sovereign wealth funds was a very hot topic during the recent Scottish referendum with much focus upon the Norwegian oil investment fund which has performed well over the years. The investment fund is financed by income from the country’s oil reserves and is now a phenomenal $876 billion in size. However, 2015 proved to be a very challenging year for the oil industry and 2016 has not fared much better so far.
Real estate investments
The total return on the Norwegian sovereign wealth fund in 2015 came in at 2.7% which is less than half of the average over the last decade. If we dig a little deeper will see that real estate investments generated a 10% return, stocks 3.8% with bonds a disappointing 0.3%. Further analysis shows a 7% reduction in emerging market investments and a phenomenal 13.7% fall in oil and gas stocks which reflects the ongoing challenges in the marketplace.
There was a significant increase in the fund’s real estate investments over 2015 with an additional $6 billion injected into this area. There is no doubt that the investment in real estate masked many challenges in other areas not to mention currency fluctuations. This perfectly illustrates the “safe haven” image which the real estate sector has fostered over the last few years.
Is real estate really a safe haven?
In years gone by the gold market was seen as the safe haven for investors during troubled times but it would appear that real estate is challenging this mantle. Let’s not forget that the property market was heavily impacted by the 2008 US mortgage crisis which led to the worldwide economic downturn. Some property markets have performed well, some are struggling to recover while others are doing all they can do to tread water. However, overall there has been potential to create significant returns on real estate investments even during these challenging times.
Once the currency markets calm down, the worldwide economy finally gets back on an even keel it will be interesting to see whether there is a movement back to gold as the “safe haven” or whether indeed we have seen a significant shift towards real estate investment.
The future of worldwide real estate markets
The immediate future of the worldwide real estate market is difficult to predict with any real confidence. Despite the fact that the US government recently increased base rates there would seem to be downward pressure across Europe and other areas of the world. There are real concerns about the short to medium term outlook for the worldwide economy and indeed individual issues such as the UK referendum on European membership and the forthcoming US elections offer specific challenges.
It seems as though we will have historically low finance rates for some time to come with a recent suggestion that UK base rates may remain at current levels (or below) until 2021. This should to a certain extent support the worldwide real estate market but ultimately the performance of the worldwide economy will be the key going forward.