Passer au contenu principal
Funds chevron_right
News chevron_right
Contact chevron_right

Le contenu de cette page relève de la communication marketing

4 min read time

Fishing where the fish are

"The seas fringing land make up less than a tenth of the world's oceans, yet, astonishingly, 90 percent of all marine creatures live in these coastal waters." – David Attenborough

During the 2018 annual meeting for the Daily Journal, Charlie Munger, vice-chairman of Berkshire Hathaway and longtime partner of Warren Buffett, told investors: "The first rule of fishing is "fish where the fish are," and the second rule of fishing is "don't forget rule number one." And investing is the same thing. Some places have a lot of fish, and you don't have to be that good a fisherman to do pretty well. Other places are so heavily fished that no matter how good a fisherman you are, you aren't going to do very well."

If you are a fisherman, it makes sense to fish in the shallow coastal waters where the vast majority of fish are. If you are an investor, on the other hand, where should you go to find undervalued stocks? Although they can be found in many places, we believe the micro, small and mid-cap (SMid cap) universe offers a particularly high concentration of undervalued stocks.

We define micro-caps as companies capitalized below EUR 300 million, small-caps as those between EUR 300 million and EUR 2 billion, mid-caps between EUR 2 billion and EUR 10 billion, while anything over EUR 10 billion is large-cap.

By this definition, there are around 1,700 large-cap stocks globally. In contrast, there are close to 17,000 SMid cap companies. Hence, the opportunity set is ten times larger fishing in SMid cap waters than if you limit yourself to the biggest fish.


A focus on catching fish rather than chasing whales. Photo: Yomex Owo,

Mispriced opportunities

The SMid cap waters are also not as heavily fished. Investors steering funds with several billion dollars under management will have a tough time navigating the shallower SMid cap waters. Most large funds and those with a high turnover strategy need high trading liquidity in a stock to be able to invest. Hence, there's often a liquidity premium to be earned if you are willing and able to hold stocks with slightly lower liquidity.

Furthermore, SMid cap stocks receive far less research coverage from sell-side analysts than large-cap ones, increasing the likelihood of mispricing. Among large-caps, almost 90% have more than 10 analyst recommendations whereas only 4% are covered by five analysts or fewer. In contrast, only 16% of SMid cap stocks have over 10 analyst recommendations and about two thirds had five or less[1].

Of course, this does not mean that there can't be mispricing in large-cap stocks. However, we believe that they tend to be more efficiently priced and anomalies are fewer and farther between. As unconstrained contrarian value investors, we routinely invest across all company sizes, sectors and geographies. This is a great advantage as we can always cast our line where the fish are most plentiful in our pursuit of superior returns for our fellow SKAGEN Focus unit holders.

Increased exposure towards small and mid-cap stocks

We have gradually increased our emphasis on smaller companies and today about 85% of assets are invested in micro, small, mid-cap stocks. We expect this exposure to remain high in the future, although we will sometimes come across very attractive large-cap investment opportunities which we will not pass up.

It is important to note that with around EUR 150 million of assets, the fund could double in size two or three times over and remain nimble enough to take advantage of the attractive opportunities we currently see in the SMid cap space.

Over the past 12 months SKAGEN Focus has delivered very strong performance, both in absolute terms and relative to our benchmark. This has been the result of sticking to our guns, remaining true to our contrarian and price driven investment philosophy, and staying disciplined in our investing process. We have also been helped by external factors, such as value investing returning to favor and several holdings benefitting from raw materials tailwinds.

Regardless of what the future holds for the global equity market, we will continue to leverage our unconstrained mandate, stay true to our process and work diligently to find undervalued stocks, all while remembering the first and second rules of fishing.

[1] Source: Bloomberg

Is value investing back from the wilderness?

A year ago, the contrarian value investor seemed on the brink of extinction. SKAGEN Focus portfolio manager Jonas Edholm examines why value investing might now be coming back from the wilderness.

En savoir plus arrow_right_alt
SKAGEN Focus: Digging for discounts in metals and mining

"A gold mine is a hole in the ground with a liar on top" –  Mark Twain's description captures the mistrust of an industry which has historically inflicted some of the largest losses on US investors, but it more accurately reflects one widely misunderstood due to its strong cyclical forces.

En savoir plus arrow_right_alt
Investment Philosophy

CIO Update: Survival of the fittest

January is the month to get active both physically and financially – good stock picking will ensure ... Read the article now arrow_right_alt

More about Investment Philosophy

Finding value in times of uncertainty

We consider the advantages of an active, price-driven, contrarian and long-term investment strategy ...

The return of common sense: How stock markets will find their feet in 2023

Equities to recover once recession confirmed; interest rate normalisation to sustain value recovery.

What fighting inflation means for stock markets

While investor sentiment remains negative, the longer term opportunities are bright.

Les rendements historiques ne constituent pas une garantie pour les rendements futurs. Les rendements futurs dépendront, entre autres, de l'évolution du marché, des compétences du gestionnaire du fonds, du profil de risque du fonds et des frais de gestion. Le rendement peut devenir négatif en raison de l'évolution négative des prix. L'investissement dans les fonds comporte des risques liés aux mouvements du marché, à l'évolution des devises, aux niveaux des taux d'intérêt, aux conditions économiques, sectorielles et spécifiques à l'entreprise. Les fonds sont libellés en NOK. Les rendements peuvent augmenter ou diminuer en raison des fluctuations des devises. Avant d'effectuer une souscription, nous vous encourageons à lire le prospectus du fonds et le document d'information clé pour l'investisseur qui contiennent des détails supplémentaires sur les caractéristiques et les coûts du fonds. Ces informations sont disponibles sur le site Storebrand Asset Management administre les fonds SKAGEN qui sont, par convention, gérés par les gestionnaires de portefeuille de SKAGEN.