When looking for the best stocks to buy, it helps to follow the money. And most of the money in the stock market comes from a few organizations with a strong track record of success.
I’m talking about sovereign wealth funds, the investment vehicles of wealthy countries such as Saudi Arabia. According to Bloomberg, the country’s Public Investment Fund (PIF) is diversifying away from oil as part of its Vision 2030 plan to make Saudi Arabia a global investment powerhouse.
Ultimately, PIF wants to control more than $2 trillion in assets, 50% of which are investments outside Saudi Arabia, up from the 5% currently.
“We are building a portfolio that is diversified across sectors, asset classes and geographies, and expect the Vision Fund to act as a platform to access a range of exciting, emerging opportunities in the technology sector,” PIF managing director Yasir Alrumayyan recently said about its ambitious plans.
Saudi Arabia isn’t alone, either. Sovereign wealth funds from all over the globe are piling into this bull market, and driving a select group of stocks higher thanks to the influx of capital.
Investing alongside some of the world’s wealthiest can be very profitable. Here are seven stocks to buy owned by some of the world’s wealthiest sovereign funds.
Stocks to Buy – Posco (PKX)
In June 2015, Saudi Arabia’s PIF acquired a 38% stake in Posco Engineering & Construction, a South Korean construction company controlled (52.8%) by Posco (ADR) (NYSE:PKX), a South Korean steel company with additional investments outside its main focus.
“We are aware of the industry’s strategic importance for the Kingdom and therefore we have planned to invest in this sector in order to respond to the local market needs for specialized engineering and construction services that are comparable with global standards,” said Abdulrahman M. Al-Mofadhi, secretary general of the Public Investment Fund, in 2015 at the time of the deal.
The deal gave Posco’s affiliate entry into the Saudi Arabian market which is one of the world’s fastest growing.
Posco is also a holding of Charlie Munger, Warren Buffett’s partner, who’s called it “the most efficient steel company in the world.”
Stocks to Buy – Apple (AAPL)
If there is a better sovereign wealth fund website than the Norway Global Pension Fund, I’d like to see it. Because this one lays out its investments in a very straightforward and transparent way, better than a lot of corporations, in fact.
The fund was established in 1990 to invest Norway’s oil revenues from the multinationals. In 1998, the Norges Bank Investment Management was created to manage the fund on behalf of the Ministry of Finance. It moved about 40% of the fund’s bond portfolio into equities. Today, equity investments account for 65.1% of the fund’s assets which hit $1 trillion in September.
Of the fund’s 9,000 stocks held, Apple Inc. (NASDAQ:AAPL) is the largest holding at $7.6 billion. It might not seem like a big amount in the scheme of things but if you hold AAPL stock, you ought to feel pretty good that out of this many stocks, Apple is numero uno.
Earlier in the year, I discussed why I thought AAPL stock could hit $200. I still feel that will happen sometime in 2018 — and apparently, so does Norway’s pension fund.
Stocks to Buy – GGP (GGP)
One of my favorite Canadian-based companies is Brookfield Asset Management Inc (NYSE:BAM) who manage more than $200 billion in alternative investments for third-party investors as well as itself.
Its CEO, Bruce Flatt, is one of the most highly regarded executives in North America and likely the world. Brookfield owns 35% of GGP Inc (NYSE:GGP), one of North America’s largest owner of malls and previously known as General Growth Properties.
While it might seem odd that Brookfield would own malls at a time when retail is struggling, its whole outlook is about buying assets on the cheap—it rescued GGP out of bankruptcy—and patiently waiting for those assets to rise in value.
Flatt’s a patient investor. He, along with the Abu Dhabi Investment Authority, which owns 4.3% or 38.6 million of GGP’s shares, will continue to own the stock until it gets full value for them.
Another side-door way to invest with the world’s wealthiest is to buy BAM stock and enjoy all of the other great investments it owns around the world.
Stocks to Buy – Teck Resources (TECK)
China Investment Corp. (CIC) got its start in September 2007 with $200 billion in investment capital. At the end of 2016, those assets had grown to more than $813 billion. Not quite as big as Norway’s sovereign fund, but significant nonetheless.
Public equities account for 46% of its overall investments, with 51% of those equities in U.S. companies, 38% in non-U.S. developed markets and the remaining 11% in emerging markets.
One of CIC’s big investments shortly after its establishment was in Teck Resources Ltd (USA) (NYSE:TECK). It acquired 17.2% of the Canadian mining company in 2009 for $1.37 billion. Today, after selling it owns 59.3 million shares in Teck or 10.4% of the company after selling 41% of its stake earlier this year.
However, investors shouldn’t take this as a loss of confidence in the company’s mining operations.
“We have full confidence in the management of Teck,” Ju Weimin, CIC’s executive vice President said in a statement in September. “The fundamentals of the company are sound. We are supportive of the strategic direction of Teck and look forward to ongoing close cooperation in future.”
When you consider that CIC’s existing stake in Teck is worth about the same amount as it paid for Tech back in 2009, I think TECK owners ought to take comfort in the fact CIC plans to hold its remaining shareholdings for the long haul.
Stocks to Buy – Daimler (DDAIY)
One of the many significant sovereign funds in the Middle East is the Kuwait Investment Authority (KIA)—the world’s fourth-largest sovereign fund managing $524 billion—which has grown its assets by 34% over the past five years.
One of KIA’s most significant high-profile investments is its 6.8% stake in German carmaker Daimler AG (ADR) (OTCMKTS:DDAIY).
Daimler is currently in the middle of a restructuring that will extract greater value from its three main operating segments which include Mercedes Benz cars and vans, Daimler trucks and buses, and its financial services’ division.
It’s believed that once the transformation is complete, Daimler will be able to spinoff its lucrative car business. Evercore ISI estimates a move could add 45% to its current market cap of $77 billion.
KIA is the largest single holder of Daimler stock. Approximately 26% of its shareholders are based in the U.S. with 35% in Germany and 29% in the rest of Europe.
Stocks to Buy – UBS Group (UBS)
Singapore is one of the safest places in the world, but it is also home to the world’s eighth-largest sovereign wealth fund with $359 billion in assets.
Established in 1981, the very Government of Singapore Investment Corporation’s conservatively managed fund has delivered a 20-year annualized return of 3.7% greater than the global rate of inflation. That might not seem like much, but when things get a little dicey as they did in 2008, the residents of Singapore will be glad the investment managers who manage the funds are so concerned about the preservation of capital.
One of its biggest investments is its 2.8% ownership stake in UBS Group AG (NYSE:UBS), the Swiss-based investment bank and wealth management advisory.
What its CEO had to say in its 2016/2017 annual report says a lot about the current equities market.
“At today’s market valuations, the universe of high-return opportunities has shrunk significantly. The 10-year US Treasury Inflation Protection Securities (TIPS), a good indicator for risk-free real yield, is currently 0.4% per annum which is markedly lower than its historical average of 1.8%,” stated Lim Chow Kiat. “More risky assets such as equities have seen a similar reduction in yields, portending poorer returns in the future.”
These are the words (good ones) of a conservative investor. If it likes UBS, you should too.
Stocks to Buy – Alphabet (GOOGL)
It’s difficult with some of these sovereign wealth funds to extract information about holdings, etc. As I said earlier, the Norwegian sovereign fund is one of the best I’ve seen. Hence, why I recommended Apple.
I’ll also pick its third-largest holding—the second, Nestle SA (ADR) (OTCMKTS:NSRGY) at $6.6 billion, trades over the counter making it less attractive—which is Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), a company that I’ve recently lost some confidence.
Not to worry. I still think it should be in most DIY portfolios.
Alphabet’s latest move to invest an additional $1 billion in Lyft with its consortium of investors both protects the total investment in the ride-sharing company while providing a future fleet of cars for its Waymo autonomous car division.
A win/win for shareholders.
More importantly, GOOGL stock has been on such a positive trajectory in 2017, any decline in its stock price after Q3 earnings October 26 should provide one of the few buying opportunities of the past 12 months.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
