That doesn't sound like activist divestment. And in fact, environmental activism isn't why Norway is considering this action:
> Norwegian officials say the plan isn’t based on any particular view about future oil prices
> the move has more to do with hedging risk than saving the planet. Norway derives about 20 percent of its economic output from oil and gas. Finance officials have long debated whether reinvesting those profits back into petroleum producers leaves Norwegians overly exposed to the volatility of oil prices.
So the headline and intro are fairly misleading, IMO.
“Norway is a petrostate with a sovereign wealth fund, and it has sensibly decided that that sovereign wealth fund will do a better job of diversifying the country's wealth away from oil if it does not also buy oil stocks. Norway has plenty of oil! “
But on the other hand, if you wanted to divest from oil with the expectation that oil will become a non-essential resource, you wouldn't go around proclaiming it loudly. I had the same thought when I first heard the announcement; this is going to be interpreted as more than a diversification move, and I'm not certain that it _is_ purely a diversification move.
Saudi Arabia is doing the same thing by listing Saudi Aramco on the stock exchange. If oil will eventually become a (relatively) niche resource, the market value derived from non-extracted resources will tank, and divesting needs to happen now, before everyone realizes what's going on. To do this without triggering the very thing you are hedging against, you need to have plausible deniability, which Norway does.
Historically, oil has gone gangbusters. I doubt any of the sovereign wealth funds lost money buying oil stocks. Yet, within a decade, we've seen a few of them announce that they're going to diversify. Ostensibly, this is a move to stabilize their long-term value against market fluctuations, but given the criticality of energy and how well historically these companies have done, it seems more likely that they're worried about a major market shift on the 30-50 year horizon and are looking to reposition themselves ahead of when the market itself moves.
So to me, it looks like major oil producers are preparing to leave oil, when viewed through a generational lens -- the wealth funds are clearing out, educational training programs are shifting, etc.
In 10-15 years, the flow of new workers will hit whatever low-level long-term carrying will be; in 30-40 years, oil will have settled into some kind of "post primary energy" role. (It's not like petrol products are suddenly not useful; just the bulk of traffic will shift, and so there won't be enough business to support several nations.)
Of course, 2050-2060 was when people were guessing that was going to happen for quite a while. But this seems like a sign we're on track for that, broadly speaking.
The important development in this decade is that we have turned some corners in technology, primarily electrical cars with sensible mass-market economics, so a significantly less oil-dense energy economy is now a mainstream projection using fairly orthodox assumptions - electricity is primarily produced from coal and natural gas, rarely oil. Previously, predicting the end of oil was more in doomsday/crackpot conspiracy territory.
Also, in this same decade, fracking came of age. Where previously the endgame for oil was holding the world hostage at ever rising prices, we now know that there is a substantial supply at $80-100, effectively capping the price there, making the endgame a lot shorter and much less profitable.
Oil will be around basically forever, but play a diminishing part.
Particularly if you're an oil exporter.
Hedging makes sense. The funds primary source of growth is oil and oil prices, the outside money. Why carry the same risk in the portfolio itself?
See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.
But yes, investing only in your employer is a particularly bad version of that.
Haha when I worked for Lucent long ago they actually had a program set up exactly for that, so my more foolish colleagues received vastly-overpriced stock in place of some percentage of their salary. Thinking back, the managers must have had some kind of incentive because they hyped it in unseemly fashion.
No need to keep it there if you just want to take your gains and walk.
That said: yes, they're usually a very good value for employees as long as you sell immediately and diversify the proceeds.
It's interesting that these schemes aren't viewed in the same light as e.g. credit card incentives. Getting 0% interest for the first 6 months is a deal good enough to put the credit card bank out of business, but somehow enough credit card borrowers are getting screwed to pay for the incentive overall. TANSTAAFL. Why is that harder to recognize in some circumstances? Is it a class thing? Anyone can get a credit card, while only high-quality people like ourselves can get a job at Acme Inc?
Anyway credit card companies might be evil, but they receive enough scrutiny to be extremely lawful in their evil. (If you actually pay off the debt they won't forget about your payment.) Can we really make the same statement about employers, in general? One might have a standing order to sell these shares at regular intervals, but one has seen enough HR shenanigans by this point to realize that they DGAF about employee interests... "Oh gosh we're sorry that got changed at the beginning of the year and we didn't tell you about it for 9 months while you lost all the money you've ever made in this program! Our recent stock slump has been difficult for everyone! There's nothing we can do about it now! I guess you should have been mildly disciplined..."
ESPP is only for publicly traded companies, and when the purchase goes through, you get shares at a discount on the more advantageous of the starting and ending stock prices.
HR has no power to prevent you from selling that stock, it’s held in a stock account over which you have full control and HR has none.
The winning move is not to play.
Implies exactly that. If it had nothing to do with activism then 1) activism effort to influence investments failed and 2) this lends no momentum to the movement as it was a coincidence and could be changed tomorrow regardless of environmental impact.
The only way this is positive news for EA is if they spin and misrepresent it as is done here.
Oil may or may not have a bright near to mid term financial future, but Norway's move is either virtue signaling at the national level or diversification of a portfolio that's too heavily invested in that sector. In itself it won't change the oil market one iota.
I also believe that as EVs grow to 5%, 10%, 20% of the global sales for cars, Norway will increase its "hedging" over the next few years, which will show some direct correlation between EVs and Norway's decision to hedge its oil stock risk.
So the total "negative exposure" towards EVs if all cars everywhere become electric is <30%.
Furthermore, the retail sales of gasoline and diesel fuel has not yet shown any decline in Norway , despite EV-subsidising policies being in effect for a decade. So decreased fuel sales volume has a many-year (perhaps even decade) long lag behind increased EV sales.
(The average Norwegian car is 17 years when it is scrapped.)
 https://www.ssb.no/en/energi-og-industri/statistikker/petrol... - petroleum product sales statistics, English description, you can export to csv file.
If oil price drops too far you coild imagine gasoline and diesel generators taking over for gas :p or at least NLG taking a hit... the energy market is coupled.
Odd. The stats you point to say otherwise. Says motor gasoline is down (1.9%) and diesel is up (4.7%) – so it's kind of a wash.
More interestingly (in the context of this news of divestment) the total figures are down year on year on year
(in 1000 litres units)
2012 9 635 521
2013 9 279 405
2014 8 995 567
2015 8 827 093
2016 8 790 684
Until the Norway experiment one could not know how much people care about using a fundamentally different car technology.
It shows that with likelyhood as EV prices drop sales will take off elsewhere.
But because of the harsh climate, Fenno-Scandinavians are already used to plug their car when they park it at home or at work (to warm up the engine and the interior in wintertime). Less change, an habit of seeing plugs a bit everywhere and the knowledge that it is not so much of a practical, legal, financial problem to have such a network installed, so less reluctance to switch, compared to inhabitants of southern Europe who imagine, rightly or wrongly, major obstacles to overcome for everyday use.
So your stats have to be viewed through a heavy prism: it's not a customer trend as much as a government push.
Also, a proposal has recently been made for a tax on heavy electrics (Tesla's). It will add $11687 to the purchase price of a Tesla X, before the now exempted VAT is added.
Road tolls for PEVs will be increased to half of ICE vehicles'.
Electric cars would not sell anywhere near as good if they weren't exempt from taxes and cost twice as much as they do now.
In other words, when you take away the implicit subsidies for the unpriced carbon, electric cars become cost-competitive?
(In Norway, the electric grid is primarily renewable/hydro based... yes, I realize this argument is different for countries with different electrical makeups)
It's not like they're cheap, but the fees are insanely high for ICE cars in Norway.
A BMW M550i is from what I can see $73,400 in the US and $135,300 in Norway. That's 82 percent more. The difference is way smaller for electric cars.
Come Tesla, and suddenly all the rich people in Oslo wanted one so they could bypass the commuters by driving in the bus lanes.
The rest of the nation is still very much an ICE nation. When you have to drive a half hour or more to do certain types of shopping when you live outside the cities, they are pretty much required.
On a more flatter terrain around Oslo the car could go around 150km. This is more than enough for any kind of shopping. The newer eGolf almost doubles the range making it absolutely non-issue if one gets car today.
The real reason is why electrical car has not been popular with less wealthy people is that cars in Norway are heavily taxed making one a heavy investment that one sticks to and people here are rather conservative. But attitude is changing.
Pretty much Bloomberg's modus operandi when it comes to their select few pet projects.
I wish financial reporters would stop using blatant hyperbole. The graph shows a -0.21% drop. That's nothing. The intraday noise is half that amount. 5% might be a "sharp drop," 10% definitely would be, but 0.2%, is not even a blip. A more realistic report would be "European stocks practically ignore Norwegian fund's announcement to leave oil" but that would not support their message that Norway is doing this as a statement about climate change. (In fact, as reported, their statement said nothing about the reasons for diversification, so the report's twisting that into a polemic about how everyone is abandoning oil is unjustified.)
I think "ethical investing" is largely a -EV game, but I do think it has beyond symbolic value.
IOW, investing with the additional constraint of "investments must be ethical in the following ways" is likely to underperform an equally skilled peer who is free to invest anywhere.
Now, that may still be OK, and it's more than possible to show positive gross returns from ethical investing, of course.
So the point is more to free yourself from an obligation to act immoral.
Ethical divestment quietly, by regular individuals: mostly useless.
Ethical divestment loudly (publicized), by respected institutions or famous investors can be useful if done correctly.
The utility of divestment comes in its' signaling power. A large, well-respected university divesting signals that the university expects the future value of oil to be less than it is today. The expectation is backed up by putting it's money where it's mouth is (see: http://longbets.org/).
If I'm an unscrupulous investor and see powerful institutions signaling that they believe society will change in some way such that an investment in oil is less valuable, I should probably believe them. They are, after all, powerful institutions for a reason (partially b/c they are good at surviving), and their divestment ensures that those institutions will welcome carbon taxes or other measures that reduce the value of oil.
Lastly, divestment can start to signal social stigma against the industry, making that industry less attractive to skilled talent.
False. Companies make secondary offerings for acquisitions or other purposes as well as issuing shares as part of employee/executive compensation.
You mean "less scrupulous".
If ethical investing works, then it does so by making capital more expensive for companies you do not invest in. And the market for capital is two-sided, so the people who do invest in it get above-market returns at your expense.
If you get market-rate returns, on the other hand, you haven't made capital any more expensive for the unethical companies.
Norway derives about 20 percent of its economic output from oil and gas. Finance officials have long debated whether reinvesting those profits back into petroleum producers leaves Norwegians overly exposed to the volatility of oil prices.
It fails to state clearly that the only reason that Norway has a $1 trillion dollar surplus of funds is because of their oil wealth. They are divesting from oil stocks due to simple goal of diversification, to prevent the Norwegian economy and the fund from being too closely coupled. While it's gauche to quote Wikipedia as the arbiter of truth:
The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector.
The Government Pension Fund Global (Norwegian: Statens pensjonsfond Utland, SPU) is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. Its name changed in January 2006 from the Petroleum Fund of Norway. The fund is commonly referred to as the Oil Fund (Norwegian: Oljefondet).
The purpose of the fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, mainly from taxes of companies but also payment for licenses to explore for oil as well as the State's Direct Financial Interest and dividends from the partly state-owned Statoil. Current revenue from the petroleum sector is estimated to be at its peak period and to decline in the future decades. The Petroleum Fund was established in 1990 after a decision by the country's legislature to counter the effects of the forthcoming decline in income and to smooth out the disruptive effects of highly fluctuating oil prices.
The most charitable interpretation I can come up with is that BloombergMarkets assumes that everyone bothering to read the article already knows this. But somehow I doubt this is true, and that the authors were actually making this assumption. So why is it written this way? Spin, ignorance, or just bad editing?
> So why is it written this way? Spin, ignorance, or just bad editing?
I don't know. Good question, though. A symptom of the journalism crisis in general? I can't remember where, but I think I read something about it a couple of days ago, something along the lines of a bubble of digital journalism, about to burst pretty soon, etc.
http://www.etf.com/sections/features-and-news/top-10-sociall... has some basic details about some popular ones.
"VICEX, as the ticker implies, holds a basket of stocks specializing in alcoholic beverages, tobacco, gaming and defense/aerospace industries"
Just missing CXW and its 6% dividend to round out the fund.
Also, really low cost might be hard since excluding something like 'not friendly to the environment' is more of an active managed fund. There is this though:
Great article on slate about it: http://www.slate.com/articles/business/moneybox/2004/10/avoi...
While the economics of it are sound, i.e. diversification, etc. it still is a major asset movement by an investor who would otherwise be strongly bullish on the commodity. Any way you slice it, this is a big deal.
Norway has some of the most expensive gasoline in the world, due to really high fuel taxes.
They also seem to have been preparing for life after oil from early on, as opposed to other petrostates only beginning to consider it when it becomes obvious that they have to change.
A big part of the idea behind the oil fund is to make sure the county has resources if the income from oil where to decline. Investing in oil when such a high percentage of Norway's income is from oil might be a bad idea.
This is nothing more than "it might be a bad idea to put all the eggs in the same basket".
If the fund is to diversify away from oil, silly to buy oil stocks. If oil does well, they have more in the ground.
Because of the high extraction costs for Norwegian oil, it is possible for Norwegian oil to crash, while other oil producers are still massively profitable.
So it is not about "oil or not oil" as such but the oil price.
If I was thinking of selling a huge amount of shares, I’m not sure I would announce I was considering selling and drive the price down.
What was their thinking here?
Changing the mandate require approval by the parliament.
Then Norway begins to diversify their holdings over many years as they probably should have done already, but now at a fair price because everyone now knows this is going to happen, so it is "priced in".
This story is the exact reason why most everyone should ignore this financial news nonsense. This is an opportunity to buy oil companies at a discount, but this story makes it sound as though it is time to start selling off petroleum stocks. It is also a reminder that your portfolio needs to be diversified, you don't know what is going to happen tomorrow.
As this seems just at a discussion level still, it still would have to pass through several levels of parliament debates etc, it is not really an announcement of policy, more just possible ideas made by someone associated with the fund.
Though as they have already been ordered to divest from tar sand and armaments companies it does seem possible from an ethical stand point. Slightly hypocritical though.
It does makes sense in spreading out future risk, divesting from oil & gas, but honestly not something they have to rush into for quite a few decades.