Did the CNB spend tens of billions this summer on shares in Apple, Tesla, Microsoft and other American firms?

There has been speculation in the media that the Czech National Bank spent tens of billions of koruna this summer buying shares in Apple, Tesla, Microsoft and other American firms. The CNB has been investing part of its international reserves in equities since 2008. It regularly informs the public about the nature and size of these investments in its annual reports. That the CNB holds Apple, Tesla and Microsoft stocks as part of its international reserves should therefore come as no great surprise, as these are the biggest American corporations. For example, Microsoft and Apple each have a market capitalisation of around $2.5 trillion and rank first and second in terms of weighting in the S&P 500, together accounting for 14% of the index. In other words, if the CNB invests in American equities and its aim is to gain exposure to the American market, it can hardly avoid investing in the largest American companies, including the ones mentioned above.

Between 2008 and 2023, the equity portfolios were managed externally by BlackRock (BR) and State Street Global Advisors (SSgA). These companies executed all trades in these portfolios on the relevant exchanges and also fulfilled the regulatory requirements on the CNB’s behalf. On the American market, this involved them filing reports in their own names with the US equity market regulator (the U.S. Securities and Exchange Commission, SEC) on the equities they were holding for the CNB in the externally managed portfolios. When the equity portfolios were managed solely by external managers, it was impossible for the public to find out about the individual stocks held by the CNB based on the reports filed with the SEC, because the information reported on behalf of the CNB was combined with that for thousands of other BR and SSgA investors.

As the CNB communicated repeatedly in past years, the external management of its equity portfolios was to be gradually replaced by internal management directly at the CNB, the same way as its other international reserves portfolios are managed. The process of transferring assets from external to internal management took place between 2021 and 2023 and was officially completed in October 2023.

The information required by the regulator is always filed at the end of each quarter. The CNB therefore reported information as of the end of June and the end of September this year to the SEC. At the end of June, roughly one-third of the US equity portfolio was still being managed externally (and the remaining two-thirds internally), whereas by the end of September, external management of the US equity portfolio had been ended completely. So in June, the CNB informed the SEC directly, itself and in its own name about two-thirds of its American equity holdings, while the external managers reported on the remaining one-third. In September, the CNB reported on the entire amount itself. No conclusions can be drawn about the CNB’s equity investments solely from the reports filed with the SEC. The CNB did not invest a single dollar in American equities during summer 2023. All that went on was routine portfolio management, including dividend reinvestment. Contrary to the claims made by some commentators and media outlets, no new funds flowed into the US equity portfolio from the CNB’s international reserves.

As for the equity investment structure, the CNB has repeatedly communicated that it invests solely in the form of passive equity index replication. Its investments on the American market are linked to the widely followed and very well known S&P 500 index, which contains 500 of the largest companies in terms of market capitalisation. The CNB attempts to fully replicate the structure of the S&P 500 index to the maximum possible extent, i.e. to copy exactly the weightings of the individual stocks contained in the index. Put simply, if Apple, for example, had a 7.00% weight in the S&P 500 index on 30 September 2023, its weight in the CNB’s US equity portfolio was also 7.00% on the same date. The same goes for Microsoft (index weight 6.53%, CNB portfolio weight 6.53%) and Tesla (index 1.92%, CNB 1.92%). The “increase” – and we feel it bears repeating here that this involved a change in reporting, not an actual increase – of roughly 50% was therefore not limited to the stocks of American tech giants. It concerned all the stocks represented in the S&P 500 that were transferred to CNB management in September.

Updated on 23 February 2024.