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Good opportunities for stock pickers

It is difficult to predict the future. Even for active stock pickers like SKAGEN's portfolio managers, which focus on companies' ability to create value, the challenge is that companies are affected by economic developments. The best way to minimise the problem is to buy shares in low valued companies that are relatively immune to major fluctuations. Buying shares when they are on sale means that the chance of the companies being undervalued is, naturally, greater.

Healthcare for man's best friend

One recent example is the purchase made by the equity fund SKAGEN Global in the first quarter this year. When the share price of the Japanese conglomerate Nissan Chemical Industries fell during the stock market turbulence at the beginning of the year, the fund's portfolio managers were quick to pick up the stock.

"Nissan Chemical has long been on our radar. We met management in Japan a couple of years ago, and have just been waiting for a good opportunity to buy into the company," explains the lead manager of SKAGEN Global Knut Gezelius.

Nissan Chemical has specialised in various highly profitable niches including technology, chemicals and healthcare. They put more resources into research and development than most of their competitors. A promising area is animal healthcare, which is growing in line with an increasingly affluent middle class, which tend to regard pets as family members.

Data goldmine

Another newcomer to the SKAGEN Global portfolio is the owner of the New York Stock Exchange, Intercontinental Exchange (Ice). With its dominant position within stock exchange listings, the company is sitting on a goldmine of data, which forms the basis for third party market insight and analysis. Ice also has a stable, visionary and shareholder friendly management team that has been in place for more than a decade and which has positioned the company correctly time after time. Ice entered the portfolio towards the end of 2017. The portfolio managers increased the position at the start of this year when the share price was lagging. The company is now one of the fund's top five holdings, accounting for more than four percent of the portfolio.

"Ice earns money both when people buy and when they sell. They also own all the stock exchange data and this will be an increasingly valuable, non-replicable commodity in future. This is a company that we believe in long-term over the next five to ten years," says Knut Gezelius.

The Ferrari of hotels

Turbulent times also provide the opportunity to build positions in new investment ideas, which may ordinarily have limited liquidity. During the last quarter, the Global team bought stocks in the Asian luxury hotel chain Shangri-La (which accounts for less than one percent of the fund at the time of writing).

The investment thesis is built around the fact that the company will grow in the Chinese market and, to some extent, expand via franchise. The latter should prove to be profitable since their own equity will not be needed to build hotels, but they will receive a regular stream of licence income.

Rising in turbulence

There are also high quality companies which, instead of falling, rise during uncertain times. The auto security company Autoliv, which has long been part of the SKAGEN Global portfolio, gained 15 percent in the first quarter. After its former competitor Takata went bankrupt because of a defect in 70 million of their airbags, Autoliv's market share has increased as the company has won over 50 percent of the orders in certain periods.

Autoliv made headlines recently when the activist investor Christer Gardell's Cevian Capital bought around eight percent of the company. A trigger to releasing values is the upcoming separation of the company into two listed companies: Autoliv and the new technology company Veoneer. This will be headed up by the visionary and shareholder friendly Jan Carlson.

Content which grows

Another company which did well last quarter was the US Adobe, a new position in SKAGEN Global's portfolio. The company is a world leader in picture editing programs and web tools. The company has gained almost ten percent since we bought into it. By converting its users to subscribers, the earnings predictability has increased and the programmes have become more reasonably priced. This combination is leading to higher quality cash flow, which in turn forms the basis for higher valuation. Adobe is well positioned in several ways: production of content for social media and other channels is predicted to continue to increase and the company has a monopoly.

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