Investor Education
Visualizing The World’s Largest Sovereign Wealth Funds
Visualized: The World’s Largest Sovereign Wealth Funds
Did you know that some of the world’s largest investment funds are owned by national governments?
Known as sovereign wealth funds (SWF), these vehicles are often established with seed money that is generated by government-owned industries. If managed responsibly and given a long enough timeframe, an SWF can accumulate an enormous amount of assets.
In this infographic, we’ve detailed the world’s 10 largest SWFs, along with the largest mutual fund and ETF for context.
The Big Picture
Data collected from SWFI in October 2021 ranks Norway’s Government Pension Fund Global (also known as the Norwegian Oil Fund) as the world’s largest SWF.
The world’s 10 largest sovereign wealth funds (with fund size benchmarks) are listed below:
| Country | Fund Name | Fund Type | Assets Under Management (AUM) |
|---|---|---|---|
| 🇳🇴 Norway | Government Pension Fund Global | SWF | $1.3 trillion |
| 🇺🇸 U.S. | Vanguard Total Stock Market Index Fund | Mutual fund | $1.3 trillion |
| 🇨🇳 China | China Investment Corporation | SWF | $1.2 trillion |
| 🇰🇼 Kuwait | Kuwait Investment Authority | SWF | $693 billion |
| 🇦🇪 United Arab Emirates | Abu Dhabi Investment Authority | SWF | $649 billion |
| 🇭🇰 Hong Kong SAR | Hong Kong Monetary Authority Investment Portfolio | SWF | $581 billion |
| 🇸🇬 Singapore | Government of Singapore Investment Corporation | SWF | $545 billion |
| 🇸🇬 Singapore | Temasek | SWF | $484 billion |
| 🇨🇳 China | National Council for Social Security Fund | SWF | $447 billion |
| 🇸🇦 Saudi Arabia | Public Investment Fund of Saudi Arabia | SWF | $430 billion |
| 🇺🇸 U.S. | State Street SPDR S&P 500 ETF Trust | ETF | $391 billion |
| 🇦🇪 United Arab Emirates | Investment Corporation of Dubai | SWF | $302 billion |
SWF AUM gathered on 10/08/2021. VTSAX and SPY AUM as of 09/30/2021.
So far, just two SWFs have surpassed the $1 trillion milestone. To put this in perspective, consider that the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund (VTSAX), is a similar size, investing in U.S. large-, mid-, and small-cap equities.
The Trillion Dollar Club
The world’s two largest sovereign wealth funds have a combined $2.5 trillion in assets. Here’s a closer look at their underlying portfolios.
1. Government Pension Fund Global – $1.3 Trillion (Norway)
Norway’s SWF was established after the country discovered oil in the North Sea. The fund invests the revenue coming from this sector to safeguard the future of the national economy. Here’s a breakdown of its investments.
| Asset Class | % of Total Assets | Country Diversification | Number of Securities |
|---|---|---|---|
| Public Equities | 72.8% | 69 countries | 9,123 companies |
| Fixed income | 24.7% | 45 countries | 1,245 bonds |
| Real estate | 2.5% | 14 countries | 867 properties |
As of 12/31/2020
Real estate may be a small part of the portfolio, but it’s an important component for diversification (real estate is less correlated to the stock market) and generating income. Here are some U.S. office towers that the fund has an ownership stake in.
| Address | Ownership Stake |
|---|---|
| 601 Lexington Avenue, New York, NY | 45.0% |
| 475 Fifth Avenue, New York, NY | 49.9% |
| 33 Arch Street, Boston, MA | 49.9% |
| 100 First Street, San Francisco, CA | 44.0% |
As of 12/31/2020
Overall, the fund has investments in 462 properties in the U.S. for a total value of $14.9 billion.
2. China Investment Corporation (CIC) – $1.2 Trillion (China)
The CIC is the largest of several Chinese SWFs, and was established to diversify the country’s foreign exchange holdings.
Compared to the Norwegian fund, the CIC invests in a greater variety of alternatives. This includes real estate, of course, but also private equity, private credit, and hedge funds.
| Asset Class | % of Total Assets |
|---|---|
| Public equities | 38% |
| Fixed income | 17% |
| Alternative assets | 43% |
| Cash | 2% |
As of 12/31/2020
A primary focus of the CIC has been to increase its exposure to American infrastructure and manufacturing. By the end of 2020, 57% of the fund was invested in the United States.
“According to our estimate, the United States needs at least $8 trillion in infrastructure investments. There’s not sufficient capital from the U.S. government or private sector. It has to rely on foreign investments.”
– Ding Xuedong, Chairman, China Investment Corporation
This has drawn suspicion from U.S. regulators given the geopolitical tensions between the two countries. For further reading on the topic, consider this 2017 paper by the United States-China Economic and Security Review Commission.
Preparing for a Future Without Oil
Many of the countries associated with these SWFs are known for their robust fossil fuel industries. This includes Middle Eastern nations like Kuwait, Saudi Arabia, and the United Arab Emirates.
Oil has been an incredible source of wealth for these countries, but it’s unlikely to last forever. Some analysts believe that we could even see peak oil demand before 2030—though this doesn’t mean that oil will stop being an important resource.
Regardless, oil-producing countries are looking to hedge their reliance on fossil fuels. Their SWFs play an important role by taking oil revenue and investing it to generate returns and/or bolster other sectors of the economy.
An example of this is Saudi Arabia’s Public Investment Fund (PIF), which supports the country’s Vision 2030 framework by investing in clean energy and other promising sectors.
Technology
Thematic Investing: 3 Key Trends in Cybersecurity
Cyberattacks are becoming more frequent and sophisticated. Here’s what investors need to know about the future of cybersecurity.
Thematic Investing: 3 Key Trends in Cybersecurity
In 2020, the global cost of cybercrime was estimated to be around $945 billion, according to McAfee.
It’s likely even higher today, as multiple sources have recorded an increase in the frequency and sophistication of cyberattacks during the pandemic.
In this infographic from Global X ETFs, we highlight three major trends that are shaping the future of the cybersecurity industry that investors need to know.
Trend 1: Increasing Costs
Research from IBM determined that the average data breach cost businesses $4.2 million in 2021, up from $3.6 million in 2017. The following table breaks this figure into four components:
| Cost Component | Value ($) |
|---|---|
| Cost of lost business | $1.6M |
| Detection and escalation | $1.2M |
| Post breach response | $1.1M |
| Notification | $0.3M |
| Total | $4.2M |
The greatest cost of a data breach is lost business, which results from system downtimes, reputational losses, and lost customers. Second is detection and escalation, including investigative activities, audit services, and communications to stakeholders.
Post breach response includes costs such as legal expenditures, issuing new accounts or credit cards (in the case of financial institutions), and other monitoring services. Lastly, notification refers to the cost of notifying regulators, stakeholders, and other third parties.
To stay ahead of these rising costs, businesses are placing more emphasis on cybersecurity. For example, Microsoft announced in September 2021 that it would quadruple its cybersecurity investments to $20 billion over the next five years.
Trend 2: Remote Work Opens New Vulnerabilities
According to IBM, companies that rely more on remote work experience greater losses from data breaches. For companies where 81 to 100% of employees were remote, the average cost of a data breach was $5.5 million (2021). This dropped to $3.7 million for companies that had under 10% of employees working from home.
A major reason for this gap is that work-from-home setups are typically less secure. Phishing attacks surged in 2021, taking advantage of the fact that many employees access corporate systems through their personal devices.
| Type of Attack | Number of attacks in 2020 | Number of attacks in 2021 | Growth (%) |
|---|---|---|---|
| Spam phishing | 1.5M | 10.1M | +573% |
| Credential phishing | 5.5M | 6.2M | +13% |
As detected by Trend Micro’s Cloud App Security.
Spam phishing refers to “fake” emails that trick users by impersonating company management. They can include malicious links that download ransomware onto the users device. Credential phishing is similar in concept, though the goal is to steal a person’s account credentials.
A tactic you may have seen before is the Amazon scam, where senders impersonate Amazon and convince users to update their payment methods. This strategy could also be used to gain access to a company’s internal systems.
Trend 3: AI Can Reduce the Cost of a Data Breach
AI-based cybersecurity can detect and respond to cyberattacks without any human intervention. When fully deployed, IBM measured a 20% reduction in the time it takes to identify and contain a breach. It also resulted in cost savings upwards of 60%.
A prominent user of AI-based cybersecurity is Google, which uses machine learning to detect phishing attacks within Gmail.
Machine learning helps Gmail block spam and phishing messages from showing up in your inbox with over 99.9% accuracy. This is huge, given that 50-70% of messages that Gmail receives are spam.
– Andy Wen, Google
As cybercrime escalates, Acumen Research and Consulting believes the market for AI-based security solutions will reach $134 billion by 2030, up from $15 billion in 2021.
Introducing the Global X Cybersecurity ETF
The Global X Cybersecurity ETF (Ticker: BUG) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Cybersecurity Index. See below for industry and country-level breakdowns, as of June 2022.
| Sector (By security type) | Weight |
|---|---|
| Cloud | 28.0% |
| Network | 25.1% |
| Identity | 17.7% |
| Internet | 15.0% |
| Endpoint | 12.8% |
| Country | Weight |
|---|---|
| 🇺🇸 U.S. | 71.6% |
| 🇮🇱 Israel | 13.2% |
| 🇬🇧 UK | 8.2% |
| 🇯🇵 Japan | 5.5% |
| 🇰🇷 South Korea | 0.9% |
| 🇨🇦 Canada | 0.6% |
Totals may not equal 100% due to rounding.
Investors can use this passively managed solution to gain exposure to the rising adoption of cybersecurity technologies.
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Investor Education
Countries with the Highest Default Risk in 2022
In this infographic, we examine new data that ranks the top 25 countries by their default risk.
Countries with the Highest Default Risk in 2022
In May 2022, the South Asian nation of Sri Lanka defaulted on its debt for the first time. The country’s government was given a 30-day grace period to cover $78 million in unpaid interest, but ultimately failed to pay.
Not only does this impact Sri Lanka’s economic future, but it also raises an important question: which other countries are at risk of default?
To find out, we’ve used data from Bloomberg to rank the countries with the highest default risk.
The Sovereign Debt Vulnerability Ranking
Bloomberg’s Sovereign Debt Vulnerability Ranking is a composite measure of a country’s default risk. It’s based on four underlying metrics:
- Government bond yields (the weighted-average yield of the country’s dollar bonds)
- 5-year credit default swap (CDS) spread
- Interest expense as a percentage of GDP
- Government debt as a percentage of GDP
To better understand this ranking, let’s focus on Ukraine and El Salvador as examples.
| Country | Rank | Government Bond Yield (%) | 5Y CDS Spread | Interest Expense (% of GDP) | Government Debt (% of GDP) |
|---|---|---|---|---|---|
| 🇸🇻 El Salvador | 1 | 31.8% | 3,376 bps (33.76%) | 4.9% | 82.6% |
| 🇺🇦 Ukraine | 8 | 60.4% | 10,856 bps (100.85%) | 2.9% | 49% |
1 basis point (bps) = 0.01%
Why are Ukraine’s Bond Yields so High?
Ukraine has high default risk due to its ongoing conflict with Russia. To understand why, consider a scenario where Russia was to assume control of the country. If this happened, it’s possible that Ukraine’s existing debt obligations will never be repaid.
That scenario has prompted a sell-off of Ukrainian government bonds, pushing their value down to nearly 30 cents on the dollar. This means that a bond with face value of $100 could be purchased for $30.
Because yields move in the opposite direction of price, the average yield on these bonds has climbed to a very high 60.4%. As a point of comparison, the yield on a U.S. 10-year government bond is currently 2.9%.
What is a CDS Spread?
Credit default swaps (CDS) are a type of derivative (financial contract) that provides a lender with insurance in the event of a default. The seller of the CDS represents a third party between the lender (investors) and borrower (in this case, governments).
In exchange for receiving coverage, the buyer of a CDS pays a fee known as the spread, which is expressed in basis points (bps). If a CDS has a spread of 300 bps (3%), this means that to insure $100 in debt, the investor must pay $3 per year.
Applying this to Ukraine’s 5-year CDS spread of 10,856 bps (108.56%), an investor would need to pay $108.56 each year to insure $100 in debt. This suggests that the market has very little faith in Ukraine’s ability to avoid default.
Why is El Salvador Ranked Higher?
Despite having lower values in the two metrics discussed above, El Salvador ranks higher than Ukraine because of its larger interest expense and total government debt.
According to the data above, El Salvador has annual interest payments equal to 4.9% of its GDP, which is relatively high. Comparing to the U.S. once more, America’s federal interest costs amounted to 1.6% of GDP in 2020.
When totaled, El Salvador’s outstanding debts are equal to 82.6% of GDP. This is considered high by historical standards, but today it’s actually quite normal.
The next date to watch will be January 2023, as this is when the country’s $800 million sovereign bond reaches maturity. Recent research suggests that if El Salvador were to default, it would experience significant, yet temporary, negative effects.
Another Hot Topic for El Salvador: Bitcoin
In September 2021, El Salvador became the first country in the world to adopt bitcoin as legal tender. This means that Bitcoin is recognized by law as a means to settle debts and other obligations.
The International Monetary Fund (IMF) criticized this decision in early 2022, urging the country to revoke legal tender status. In hindsight, these warnings were wise, as Bitcoin’s value has fallen by 56% year-to-date.
While this isn’t directly related to El Salvador’s default risk, it does open potential avenues for relief. For instance, large players in the crypto space may be willing to assist the government to keep the concept of “nation-state bitcoin adoption” alive.
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