Norway’s $1 trillion wealth fund had a return of $20 billion in the second quarter, erasing losses for the year, even as it faces growing challenges to its global investment model.

Helped by a rally in US markets and oil and gas stocks the world’s biggest wealth fund delivered a return of 1.8 per cent in the second quarter, or 167 billion kroner ($20 billion).

Its total stock holdings rose 2.7 per cent, while bonds were unchanged and property provided a 1.9 per cent return.

“In the second half of the period, the prospect of increased trade barriers and a weaker growth outlook in Europe, China and emerging markets had an adverse effect,” the fund said. “Political uncertainty in Italy impacted negatively on European financial markets.”

Investing Norway’s oil wealth abroad, the fund has been set up to capture the fruits of globalisation and the growth it drives, a philosophy that’s now being challenged by US president Donald Trump’s imposition of tariffs on key trading partners across the world. The investor, which owns about 1.4 per cent of global stocks, also sticks closely to indices, making it hard to navigate around global turmoil.

“The prospect of increased trade barriers is something that is high on everybody’s agenda, and of course for a long-term global investor like the fund,” Trond Grande, the fund’s deputy chief executive officer, said at a press conference.

“It’s fair to say that increased trade barriers, or even trade wars, will not be beneficial for the fund as a long-term global investor.”

The fund lost 5.7 per cent in emerging market stocks and 4 per cent on Chinese equities. The biggest sector driver for its returns were oil and gas stocks, which it has proposed divesting. Financial stocks were the weakest performers, led by Banco Santander.

At the end of the quarter, the fund held 66.8 per cent in stocks, 30.6 per cent in bonds and 2.6 per cent in real estate. The return missed the benchmark index by 0.2 percentage point. Equity markets regained some momentum in the quarter after tumbling at the start of the year amid a spike in volatility. The fund is also skewed more toward Europe, missing out on some of the bigger tax-cut fuelled gains in the US market. – Bloomberg