Are SWFs tapped out? Apple Inc (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT)

August 15, 2016, 09:36 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

After Brexit there has been evidence of large inflows of money into equity markets and those inflows seem to discount valuation and growth concerns in favor of dividends that are higher than comparable interest attainable from near term and midterm duration fixed income.

In what seems like a search for yield, after Brexit the spigot seemed to open for these inflows, and it is my opinion that these inflows are coming from the biggest boys in the room, namely Sovereign Wealth Funds (SWFs).  Sentiment on the Street suggests that these massive funds can push this market up forever, and they certainly have the money, but they also have mandates, ones that are not easily modified, and therefore certain limitations exist.

In this review I look at the biggest SWF on the market, The Norwegian Government Pension Plan - Global, whose top three US Holdings are technology companies, Apple Inc (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT). 

Bloomberg Reported in April that the Fund was in search of higher returns, and mandate shifts further into real estate investments were being proposed, and those a the expense of fixed income.  According to Bloomberg, the mandates currently allow for 5% real estate, 35% fixed income, and 60% equities. 

My focus is equities, and at the end of 2015 the fund had equity exposure of about 52%, reasonably below the mandated cap of 60%. This data is provided directly by the fund, which is very transparent, especially when compared to other funds.

However, recent data supplied directly from the Fund suggests that its equity exposure has now increased to 59.8% of the fund, butting up against the cap, and suggesting that they are at their equity-exposure limit.  The Government warned against allowing real estate exposure to hit their upper limits, so it is only fair to assume that these mandates are respected.

If the Mandates are respected, this SWF may already be at its limit, unable to add more liquidity to the Equity Market if you will, and it may even become a net seller of equities if the exposure begins to press beyond its upper limit.  They certainly seemed to add significantly since the end of 2015, about 8% of the fund, but as it stands today the biggest guy n the room appears to be tapped out.

We suggest that investors remain proactive and in control of their risk, and we consider our LETS strategy to be a proactive strategy that can be considered.

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