A report on investment strategies for Norway’s Government Pension Fund Global includes a section authored by Vaska Atta-Darkua, a PhD candidate at Cambridge Judge Business School, and Professor Elroy Dimson, Chairman of the Centre for Endowment Asset Management at Cambridge Judge.
This section of the report to Norway’s finance minister, entitled “Sector Exclusion” , concludes that while divesting declining industries or other sectors from an investment portfolio can generate short-term financial gains, the long-term consequences of sector exclusion can be “substantial rather than minor” by generating big risks.
“Sector divestment is equivalent to allocating a portion of the portfolio to a strategy that is long the market and short a sector,” said this section of the report, based on an examination of industry indices from 1900 to 2018. “This holding would introduce unwanted geographic tilts into the portfolio, and could suffer substantial and lengthy drawdowns.”
The full report* by the special commission concluded that Norway’s pension fund should remain invested in energy stocks, because divestment of energy stocks would challenge the fund’s current “simple, well founded” investment strategy that has served the fund well.
*To download the full report click on ‘Last ned dokument’)