Is the Sell-Off of Oil and Gas Companies in the Government Pension Fund Global an Effective Way of Reducing Norway’s Exposure to Oil Price?

Abstract

This thesis examines the decision to pull the Norwegian Government Pension Fund Global out of oil and gas companies. The risk and returns of a portfolio with and without oil and gas companies has been studied together with the different sectors and portfolios correlation with oil price. The main conclusion of this work is that a sell-off will reduce Norway’s exposure towards changes in oil price, but the impact will be limited.The impact will be limited mainly because of the limited size of the holdings in oil and gas companies compared to Norway’s economy and the overall pension fund. Secondly, the oil and gas companies stock prices follow the general market closer than they follow the oil price. Norway’s economy as a whole will still be very dependent on the oil and gas industry even after a sell-off. It was found that oil companies have similar historical returns as the rest of the equity portfolio and no significant change in expected return can be expected when selling off oil and gas companies. However, the risk adjusted return for the portfolio will be reduced as the portfolio will become less diversified and riskier as a consequence of reducing oil and gas companies and increasing the share of the remaining industry sectors.