* CEO: fund's investment exposure to Japan may be too low
* No retreat from North Africa/Middle East despite unrest
* SWF's return on assets was 9.6 percent in 2010
* Says profited from stocks bought during financial crisis
(Recasts with interview, detail)
By Wojciech Moskwa and Victoria Klesty
OSLO, March 18 Norway's $544 billion sovereign wealth fund (SWF) voiced confidence in the Japanese economy's ability to rebound from crisis and said it has not retreated from Middle East and North African markets engulfed by unrest.
The world's second largest SWF after that of the United Arab Emirates said that soaring equity investments helped it hit returns of 9.6 percent last year and reaffirmed its long-term goal for 4 percent annual returns despite low bond yields.
The fund's market value rose by 437 billion crowns ($78.14 billion) to 3.077 trillion at the end of 2010.
Its annual results come as global markets remain nervous about Japan's nuclear crisis and its economic prospects following a huge earthquake and tsunami. [ID:nL3E7EH3HN]
"If anything, the fund may have too low exposure to Japan," the fund's Chief Executive Yngve Slyngstad told Reuters, adding that 5.2 percent of its assets were based in Japan.
"Compared to Japan's relative share of world GDP, we are not really that exposed to the (Japanese) economy. The difficult situation has not changed our confidence in the Japanese economy's ability to get through this."
Slyngstad said that since Japan's nuclear emergency, the fund lost some $520 million on its investment in Tokyo Electric (9501.T), where it held a 1.27 percent stake on Dec. 31.
Slyngstad said about 0.5 percent of the fund's assets were invested in Middle East and North African nations at the end of 2010 and that this figure was bound to grow over time despite the wave of unrest across the oil-rich region.
"We are carefully watching the situation and with the longer time horizon that we have, we will certainly sit through this and reducing exposure is not in question," he said, adding that the fund may soon start investing in Saudi Arabia. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic on the fund's returns: r.reuters.com/kyc68r A Factbox on its 2011-13 strategy: [ID:nLDE72H0KH] A Table on its largest holdings: [ID:nLDE72G1N8] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
BUYER OF EUROPEAN STOCKS
Slyngstad said that all of last year's net equity purchases by the fund were made in Europe, boosting the fund's stake in European companies to an average 1.85 percent of capital -- compared to 0.7 percent in the rest of the world.
The fund earned 264 billion crowns ($46.7 billion) on investments in 2010 and said it expected continued above-average return on equities as markets remain volatile.
"It's sensible to stick to a target of 4 percent annual real return over time," Slyngstad said. Since the fund started 12 years ago, its average real return has been 3.1 percent.
"Return on the fixed income portfolio is lagging the target ... But high volatility and the uncertainties we've seen should result in a higher return on equities," Slyngstad added.
The fund said it had profited from improving company profits, low interest rates which had boosted equity markets, and stimulus measures from various central banks.
Slyngstad said the fund had been a seller of European sovereign bonds early in 2010 but bought them later in the year.
Asked if the fund would buy more bonds from the European Financial Stability Facility (EFSF), he said: "We have to see how things develop ... There will be changes in those types of bonds and investors don't have the full picture yet. Therefore it's the wait-and-see approach."
(Editing by Paul Carrel)