SOFAZ talks diversification of investment portfolio
By Trend
The State Oil Fund of Azerbaijan (SOFAZ) is considering geographic diversification as one of the key areas of its investment strategy, SOFAZ told Trend.
In recent years, in order to create the most diversified global portfolio, as well as to increase profitability in the long-term investment period, the Fund is gradually increasing the share of more risky assets such as stocks and real estate.
"It should be noted that at the moment our investment portfolio is highly diversified not only at the level of types of assets, but also at the currency level. To date, the portfolio includes financial instruments denominated in approximately 20 currencies. In addition, the geographical diversification is also one of the key areas of the Fund's investment strategy. Thus, at the moment, the investments are spread across more than 45 countries", SOFAZ noted.
The Fund intends to continue passive investing in highly diversified indices.
"For example, the "MSCI World" index includes more than 1,600 shares of large and medium-sized companies in 23 developed countries, widely representing the developed financial markets. It is worth noting that the effectiveness of this type of investment is usually considered in the long term, as it is characterized by relatively high volatility, which means significant short-term declines and growth in profitability," SOFAZ said.
Regarding real estate, the strategy provides for the creation of a fully diversified sub-portfolio, in which the developed markets, as well as various types of real estate are widely represented, the Fund stated.
"For example, as mentioned earlier, for as long as three years, the Fund has already been gradually redirecting the focus on investment in foreign real estate funds, finding this type of investment the most attractive, as they increase purchasing power and can be diversified by strategies, sectors and countries. It should be noted that further investments in a particular financial instrument, expressed in the local currency of that or other country, will depend on the analysis of financial markets and economies of these countries", SOFAZ noted.
As for investments in gold, the Fund will continue to adhere to the five percent limit specified in the investment policy, SOFAZ stressed.