e-fundresearch: "Which facts are relevant in the current market environment to value Scandinavian stocks?"Thomas Brenier, Fondsmanager, "Norden" (ISIN: FR0000299356) (16.05.2012): "In our view, Scandinavian stock valuation depends on their growth prospects which are very much linked to the health of the global economy, and their ability to maintain their margins. We do not believe that this deviates significantly from stocks in other geographic areas. A few differences might still be at play and explain sometimes a premium on some of these shares: - Strong public finances in the Nordic countries means stability and thus a lower beta than in Southern Europe for example. This is particularly true for banks that have less issues than their peers in the euro zone and are trading at a significant premium.
- Exports and exposure to emerging markets: scandinavian companies have been proactive in developing in foreign markets and especially in the emerging markets. This is an important growth driver and thus a trigger for valuation. We thus believe that it is important to track how the economy is doing in China and other emerging economies.
- Raw material and labour costs is another parameter that we carefully track to understand if the relatively high profitability of Nordic companies is sustainable."
Karl G. Høgtun & Kjell Morten Hjørnevik, Portfolio Manager, "DNB Fund Scandinavia" (ISIN: LU0083425479) (16.05.2012): "Scandinavian equity markets rallied in Q1, but have since been struggling with what to believe in: Stronger macro data and Q1 results coming in from the US or the potential further deterioration of the European government finances. The key factor to follow right now, is the Q1 company reporting season. The geopolitical unrest and the direction of the oil price will continue to be a main risk factor in the fund as the Nordic region is heavily exposed to the energy sector."
Bertrand Puiffe, Fondsmanager, "Fidelity Funds - Nordic A-SEK" (ISIN: LU0048588080) (16.05.2012): "While Nordic markets trade at a premium to other European markets, I believe the premium is justified in view of the fact that they have very low fiscal deficits and low levels of government debt compared to the rest of Europe. Nordic markets are also perceived as safer because they have no direct exposure to the Euro zone sovereign debt crisis and also enjoy higher earnings per share (EPS) growth estimates. Nordic companies are also in a strong position with many being over capitalised, with net cash on the balance sheet, low debt and good financial covenants ratios. Putting current valuations in perspective, it is worth noting that the region’s one-year forward price earnings ratio is at 12.2 x, which is below the historical average of 15.3 x. This is a 21% premium to Europe’s although in 2010 this premium was higher peaking at 25%."
e-fundresearch: "Which are the most important elements in your investment process?"
Thomas Brenier, Fondsmanager, "Norden" (ISIN: FR0000299356) (16.05.2012): "Our investment process can be broken down into two steps:
- Stock selection. This is where we ask ourselves “do we want to be shareholders in that company?” This process is based on two criteria: value creation (defined by a return on capital employed – ROCE- that is above the cost of capital - WACC) and growth. By focusing our analysis around the ROCE, we look for companies which value creation was proven in the past and looks sustainable thanks to a strong business model. We also prefer companies that have a manageable level of debt, a strong conversion of profits into cash-flow and growth opportunities.
- Valuation. Using DCF and multiples we define a fair value for each of the stocks that we have selected. Depending on the upside or downside potential from this fair value, we will buy or sell positions in the portfolio in a very disciplined manner.
The investment process may be summarized as below:"
Karl G. Høgtun & Kjell Morten Hjørnevik, Portfolio Manager, "DNB Fund Scandinavia" (ISIN: LU0083425479) (16.05.2012): "We believe that over the long run a stock develops in line with the company´s earnings power and that the stock market periodically can overreact on news or events such that stocks in periods will be over- or undervalued relative to its long-term earnings potential. We look to take advantage of the mispricing by overweighting undervalued stocks and underweighting overvalued stocks. We believe that the market in the short to midterm is driven by catalyst that can be taken advantage of. These catalysts include fundamentals, momentum, flow/liquidity, risk appetite and seasonality.
Top-down analysis is used to identify themes, sectors, styles and countries that look most attractive within the Nordic equity universe. Our monthly top-down analysis sets the framework for our stock selection, which is based on fundamental bottom up analysis.
The top-down analysis looks at macro and equity drivers to identify the most attractive themes, sectors, countries and styles within the Nordic equity universe. The macro drivers we focus on are growth and liquidity whereas the equity drivers include fundamentals (valuation, earnings momentum, earnings surprise), momentum/positioning (trend identification, mean reversion), flow/liquidity (fund flows, company liquidity), risk appetite (volatility, large vs. small cap, credit spreads) and seasonality."
Bertrand Puiffe, Fondsmanager, "Fidelity Funds - Nordic A-SEK" (ISIN: LU0048588080) (16.05.2012): "From an investment universe of around 760 stocks in the Nordic region, I narrow it down to approximately 130 companies recommended either by Fidelity’s analysts and/or trusted local brokers. I then conduct my own assessment and meet with the management of those companies that look the most appealing to select between 45 and 50 stocks for the fund to invest in. The businesses that interest me can be grouped into three broad categories: turnaround stories, undervalued compound growth and special situations.
• Companies where I feel the market is excessively negative
• EPS revisions have come down significantly over the last three to four quarters
• Looking over previous cycles, earnings trough is being reached
Undervalued compound growth:
• Underestimation of how long or fast the company can grow, because either the sell-side are focussing on short-term issues or there has been poor communication from the company
• Unfashionable businesses such as telecoms, food & beverage or utilities where for example an acceleration of asset disposals or a new revenue segment is underestimated by the market, and/or a speculative exit is not expected.
Overall, my aim is to identify ’change’ that the market fails to notice or appreciate, and then invest where my conviction is the strongest."
e-fundresearch: "Which over- and underweights do you currently hold?"
Thomas Brenier, Fondsmanager, "Norden" (ISIN: FR0000299356) (16.05.2012): "As of April30, 2012, our main over-weight and under-weight positions are as follow:
Relative over-weight holdings:"
Karl G. Høgtun & Kjell Morten Hjørnevik, Portfolio Manager, "DNB Fund Scandinavia" (ISIN: LU0083425479) (16.05.2012): "The largest overweights are currently Swedish biotech company Bioinvent, Norwegian cruise vacation company RCCL, and banks Nordea and DNB. The largest underweights are banks SEB and Svenska Handelsbanken along with Finnish elevator producer Kone corporation and Norwegian oil service company Seadrill."
Bertrand Puiffe, Fondsmanager, "Fidelity Funds - Nordic A-SEK" (ISIN: LU0048588080) (16.05.2012): "The fund is managed in an unconstrained way, so I don’t pay attention to an index and therefore I don’t think in terms of under/overweights. I invest in companies on the basis of their own merits and not because of their size in the index.
Among my top positions, I own Kinnevik Investment which falls into the turnaround category as the discount to its net asset value (NAV) reduces. Holdings like Novo Nordisk and Schibsted are businesses where I believe the compound growth is undervalued. Meanwhile, I see AP Moller Maersk as a special situation."
e-fundresearch: "Please comment on the performance and risk parameters of your fund in the current year as well as over the past 3 and 5 years."
Thomas Brenier, Fondsmanager, "Norden" (ISIN: FR0000299356) (16.05.2012): "Norden is up by 11.3% ytd, 20bps ahead of the MSCI Nordic Index. Over 3 and 5 years, the out-performance is even stronger:
- +81.1% over 3 years, i.e. 25.2% outperformance vs. the benchmark.
- +5.0% over 5 years, i.e. 20.7% outperformance vs. the benchmark.
Over 1 and 3 years, we note that the volatility of the fund has been slightly lower than the index, while its beta remained below 1. While those risk ratios are not perfect indicators, we believe that they support our view that Norden has a better risk-profile than the index.
We believe that our management process, that drives us towards quality companies while being very disciplined on valuation, has helped a lot over these periods to achieve this performance."
Karl G. Høgtun & Kjell Morten Hjørnevik, Portfolio Manager, "DNB Fund Scandinavia" (ISIN: LU0083425479) (16.05.2012): "The DNB Fund Scandinavia was up 14.2 % YTD (end of April), leading its benchmark by 2.4 %. Over the last three years the fund return has been volatile, both in absolute and relative terms. The fund outperformed the markets by almost 5 % in the terrible year of 2008, but still dropping 47 % that year. In 2009 almost all fund positions worked for the managers, outperforming by almost 20 % for a total YTD return of more than 74 %. In 2010 there was still outperformance by more than 1 % for a total return of 37 %. 2011 was a challenging year for the fund as many expensive stocks got even more expensive through the year, working against the slight value tilt in our investment philosophy. The fund lost 8 % to the index and 22 % in absolute terms this year before many of the same positions reversed and were positive contributors in Q1 of this year.
The team’s risk budget is to aim for a TE of some 3-6 %. Their IR target is 0.5 – 1.0 giving an outperformance target of some 1.5-3 % annually over a rolling three year period."
Bertrand Puiffe, Fondsmanager, "Fidelity Funds - Nordic A-SEK" (ISIN: LU0048588080) (16.05.2012): "So far this year, performance has been strong with the fund returning 17.8% in the first four months of 2012, which is ahead of the returns generated by the reference index, the FTSE Nordic Index (+13%). This was primarily driven by the fact that most of our holdings reported good results, and investor sentiment until recently had also been more upbeat. While it is still early days, I took over the fund on 1st August 2011; the performance has been good relative to both the index and compared to other funds investing in the region. The fund’s longer-term track record has also generally been good with a return of 40.4% over three years versus 38.1% for the index. Since launch, on the 1st October 1990, fund returns have been impressive delivering 1151% compared to 889% for the index. My approach to risk is on an absolute basis, rather than a relative one to the index. My primary goal is to invest in the best investment opportunities I come across in the Nordic region, but doing so by not taking undue risk. So, for instance, I don’t tend to have positions higher than 5% of the total portfolio holdings and I monitor the absolute volatility and correlation of each of the stocks I own in the portfolio. This results in the fund’s volatility being lower or in line with the index.
All returns quoted above are in Swedish Krona, net of fees, with dividend reinvested as at 30/04/12."
e-fundresearch: "What is your outlook for the Nordic region compared to overall Europe?"
Thomas Brenier, Fondsmanager, "Norden" (ISIN: FR0000299356) (16.05.2012): "Even if the robust growth rates of 2010 and 2011 might not be repeated, we think that the region should continue to grow correctly. In 2012, growth should be above 1,0% against a slight contraction in the eurozone and in 2013, growth should pick up around 2%. Apart from Denmark, where the consequences of a housing bubble are still hindering growth, the three other countries have experienced a rapid recovery from the 2009 lows. Although these economies have slowed down in tandem with the rest of Europe, indicators are still pointing to a decent level of growth. Furthermore, central banks have cut rates and the financial system remains healthy so there should be no problem of transmission of the easing policy to the domestic demand. A subdued appreciation of real unit labour costs and growing markets should help exports. The only risk factor that we see is the high level of households’ indebtedness: this problem is most acute in Denmark, where it is already the cause of a slow recovery. Sweden and Norway also have high debt/disposable income ratios. As regards inflation, these countries are still operating below capacity and this year’s slowdown will continue to keep inflationary pressures at bay. On a more structural level, these countries are well-managed and so there are very few external or public imbalances which could turn into weaknesses. Budgets are almost balanced, or should be next year, with the notable exception of Denmark for the reasons mentioned above. Taking into accounts the assets held by the government of public entities, they have negative or close to zero liabilities. The countries remain rated AAA by the main rating agencies. Another point, Denmark, Norway and Sweden still have their own central banks and currency, giving them more flexibility. Their current-account are in surplus (Finland has a small deficit), meaning that they are not reliant on foreign capital."
Karl G. Høgtun & Kjell Morten Hjørnevik, Portfolio Manager, "DNB Fund Scandinavia" (ISIN: LU0083425479) (16.05.2012): "The most important thing to remember for investors about the Nordic region is that the Nordic companies sell their products to markets globally. The revenues of the Nordic companies are therefore stimulated by the high growth in emerging markets that takes up a substantial part of Nordic exports. There is low political and economic risk in Scandinavia and both government finances and the entire financial sector are in much better shape than in most other parts of Europe. Oslo is currently Europe’s fastest growing city, unemployment is low, education levels are high and the countries are all small, open economies with long traditions in foreign trade. We remain confident that taking a position in Nordic equities as a regional play in a European or Global equity portfolio will be a profitable bet over the coming years."
Bertrand Puiffe, Fondsmanager, "Fidelity Funds - Nordic A-SEK" (ISIN: LU0048588080) (16.05.2012): "The macro-economic backdrop in the Nordic region is more positive than the rest of Europe. These economies have low government debt and low fiscal deficits compared to the rest of Europe, which provides authorities with more scope for fiscal stimulus and are less likely to lead future tax headwinds (unlike their Eurozone neighbours). The Nordic Banking industry is also in a better shape, being made up mostly of pure retail/corporate banks, whose income is primarily generated from their home market. The banking market is also fairly concentrated meaning that the banks have higher returns on equity and are more profitable. These countries are also highly competitive in terms of productivity and efficiency and are home to many high quality companies."
Alle Performance Daten der Top-10 Auswertung per 07.05.2012: