HALF YEAR REPORT - NEW OPPORTUNITIES ON THE HORIZON THE ART OF COMMON SENSE
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HALF YEAR REPORT
THE ART
OF COMMON
SENSE
NEW OPPORTUNITIES ON THE HORIZON
JULY 2015 | www.skagenfunds.com
LEADER
Patience and
lessons learned NEW EQUITY
FUND
In an increasingly globalised world, there is more is true, however, and this can give rise to a period I would like to highlight the
pressure than ever on fund managers to react to of reflection and soul searching, also in SKAGEN. successful launch of our new
events and quickly turn around their investment Our recently appointed Investment Director, global equity fund in the
portfolios. Ole Søeberg, has spent some time this spring quarter. SKAGEN Focus is a
The alternatives seem to be either to chase looking at the investment process and has made high concentration fund with
the current events or simply to give up and buy a few refinements that will strengthen the internal around 35 core holdings. The
an index fund. In our view, however, chasing the processes. In the long run, however, it is still the portfolio managers apply the
best markets, such as China, or giving up will operations in a company and how much one pays same investment policy as
not allow you create the best returns over time. for these that create the value and cause the our other funds, investing in
The well-known value investor, Warren Buf- share price of the company to increase. That is undervalued, under-resear-
fett, once observed that: “The stock market is a an important point to remember now as we enter ched and unpopular compa-
device for transferring wealth from the impatient the second half of 2015. nies. They have a bottom-up
to the patient”. His words seem to hold true more The rest of the year may well be an exciting perspective and concentrate
than ever now that the markets have entered a period with a potential interest rate hike in the on specific companies and
period in which value and company focus is in US and new economic developments in many their intrinsic value. Being
such short supply. emerging markets and Europe, amongst other benchmark-agnostic, their
In a recent report on active and passive inves- things. In the short term, the return of all our investment decisions will be
ting, the fund research company Morningstar equity funds may be influenced more by fluctu- made independently of the
concluded that value management has a greater ations than what the companies actually deliver. benchmark index, with the aim
chance of long-term success than other types The valuation of many emerging market com- of generating superior returns
of active management. We are in no doubt that panies is now attractive compared with those in over time.
common sense; coupled with an applied value developed markets and an improvement in global The portfolio may have a
focus and stock picking form the best premise economic growth should improve earnings pro- relative bias towards mid-sized
for creating excess returns over time, as it has spects for companies in many of these countries. companies, given the portfo-
in the past. We wish you a pleasant summer. lio managers´ experience of
At times, it may seem as though the opposite finding attractive investment
opportunities among such
companies. You can find out
more at www.skagenfunds.
com/focus and read the port-
folio managers´ first report
on the fund on page 27 of this
report.
– Leif Ola Rød
CEO
2 SKAGEN F UNDS HALF Y EA R REPORT | 2015
CONTENT
27
Portfolio managers Filip Weintraub and Jonas Edholm of the newly launched SKAGEN Focus that makes its debut in the
Market Report
Photos: Bloomberg
10 34
Corporate bond fund SKAGEN Credit has bought bonds in INEOS, one of the world’s largest petrochemical companies.
Bonheur/Ganger Rolf must now be seen more as a company
Pictured here are granules manufactured at their facility in Cologne.
within renewable energy that also has an option on a future
improvement in the rig market.
LEADER EQUITY FUNDS FINANCIAL
Patience and lessons learned
Leif Ola Rød
>2 SKAGEN Vekst
Slight improvement
> 10 STATEMENT
Half year accounts > 36
SKAGEN Global > 14
PORTFOLIO Uphill struggle Return and risk measurements > 39
MANAGERS´ REPORT SKAGEN Kon-Tiki > 18
Staying the course
SKAGEN m² > 23
INTRODUCTION Rainy quarter
SKAGEN seeks to the best of its ability to ensure
thatall information given in this report is correct,
How to spend it? >5 however, makes reservations regarding possible
Corporate cash piles have SKAGEN Focus > 27 errorsand omissions. Statements in the report re-
increased significantly in the Hunting for exceptional investments flect theportfolio managers’ viewpoint at a given
time, andthis viewpoint may be changed without
past five years, but what should notice.
management do with the money?
The report should not be perceived as an offer
FIXED INCOME orrecommendation to buy or sell financial in-
struments. SKAGEN does not assume respon-
FUNDS sibility for direct or indirect loss or expenses
incurredthrough use or understanding of the re-
Fixed income comment > 31 port. SKAGEN recommends that anyone wishing
Long-term interest rates: to invest in our funds contacts a qualified custo-
up, sideways or down? mer adviser by telephone on +47 51 80 37 09 or
by email at contact@skagenfunds.com.
SKAGEN Tellus > 32
Headwinds
SKAGEN Credit > 34
Unrest creates opportunities
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
3
SKAGEN FUNDS
Returns
SKAGEN FOCUS
Lead manager: Filip Weintraub Start: 26 May 2015
Return since start*
10
The following tables show the returns for SKAGEN’s 5
funds versus their respective benchmarks in euro.
The figures are updated as of 30.06.2015 0
Unless otherwise stated, all performance data in this report is in euro, relates -5
to class A units and is net of fees. -4.7%
-10
-7.6%
Equity Fund Fixed Income Fund SKAGEN Focus MSCI All Country World Index
* Since inception on 26 May 2015
SKAGEN GLOBAL SKAGEN VEKST
Lead manager: Knut Gezelius Start: 7 August 1997 Lead managers: Ole Søeberg and Geir Tjetland Start: 1 December 1993
Return past 12 months Average annual return since start Return past 12 months Average annual return since start
20 18.8% 20
25 24.0% 20
15 15
14.4%
15.2%
20 15
10.3%
15 10 10
10
10.2%
10
4.3% 5 4.4% 5
5
5
0 0 0
0
SKAGEN Vekst MSCI Nordic/MSCI AC ex Nordic
-5
-5
SKAGEN Global
* The benchmark index priorMSCI All Country
to 1/1/2010 wasWorld
the Index
MSCI (Daily
WorldTraded
Index Net Total Return)* * Effective 1/1/2014, the fund’s investment mandate changed. Read more on page 13.
The benchmark index prior to 1/1/2010 was the Oslo Stock Exchange Benchmark
Index (OSEBX).
SKAGEN KON-TIKI SKAGEN m²
Lead managers: Kristoffer Stensrud and Knut Harald Nilsson Start: 5 April 2002 Lead managers: Michael Gobitscheck and Harald Haukås Start: 31 October
Return past 12 months Average annual return since start
Return past 12 months Average annual return since start
25 24.7%
20
20 20
16.5% 20
15 15
14.8% 16.2% 15 13.7%
15
10 7.6%
10 10 8.6%
10
5
5 5 5
2.0%
0 0
0 0
-5 -5
-5 -5
SKAGEN m² MSCI All Country World Index Real Estate IMI
SKAGEN Kon-Tiki MSCI Emerging Markets Index
SKAGEN CREDIT EUR SKAGEN TELLUS
Lead manager: Ola Sjöstrand Start: 30 May 2014 Lead manager: Torgeir Høien Start: 29 September 2006
Return past 12 months Average annual return since start Return
20 past 12 months Average
20 annual return since start
15 15
15 15
13.4%
10 10 10 10
7.0%
5.9%
5 5 5 5
5.0%
0.1% -0.1% 0.1%
0 0
0 0
-0.2%
-5 -5
-5 -5
SKAGEN Credit EUR 3 Month EURIBOR SKAGEN Tellus J.P.Morgan Broad Index Unhedged (EUR)*
* The benchmark index prior to 1/1/2013 was Barclay’s
Capital Global Treasury Index 3-5 years.
4 SKAGEN F UNDS HALF Y EA R REPORT | 2015
Portfolio managers´ report
Introduction
> SKAGEN equity funds returned 3-10% in the
first of half 2015, measured in euro. Our bond
funds delivered 1.5-2.5%.
> 10-year government bond yields spiked up-
wards in 2Q 2015 from abnormally low levels.
>
M&A activity has been heady in 2015 and
could beat the previous annual record set
in 2007.
Photo: Bloomberg
> Global equities are up 3% year to date in
USD. The Chinese stock market rose sharply
hitting a total market cap of over USD 10
Photo: Bloomberg
trillion (10,000bn), despite lower economic
growth, before falling back again. The US
market is USD 25 trillion and the total global
USA. After 9 consecutive positive quarters, the S&P index market is USD 73 trillion.
fell by 0.2% in the quarter. SKAGEN Global continues to be
strongly underweight US equities which currently consti-
tutes 36% of the fund.
Photo: Bloomberg
Volatility. Chinese local shares
stood out as a positive in the second
quarter, with a 28% increase. The
frothy valuations reversed somewhat
Photo: Bloomberg
at the end of the quarter. Pictured:
a display showing the Hang Seng
Index figure in Hong Kong. On 8 July
2015, the benchmark plunged the
most since the global financial crisis
rippled across Asia.
Greek tragedy. Greece has failed to adapt to the new reality of prudent financial management needed in the post financial
crisis era. Pictured: queues outside Bank of Greece, Athens.
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
5
PORTFOLIO MANAGERS´ REPORT
How to spend it?
Corporate cash piles have increased significantly in the past five years,
but what should management do with the money?
– Ole Søeberg
Chief Investment Of f icer
Seven years ago, the financial crisis chang- ving competitiveness and market share. using the 2014 figure for US companies
ed market behaviour overnight. The hou- Taking a global view and using the (USD 550bn) among which buybacks are
sing bubble burst, M&A activity dried up MSCI AC World Index as a proxy, the 2,500 most common.
and financial assets plummeted in value. most widely followed global companies Once the shares have been bought,
Companies were suddenly compelled to are on track to generate USD 32 trillion of we would prefer that they were cancel-
rethink their liquidity and balance sheet revenues in FY 2015, equivalent to app- led to avoid diluting long-term share-
strategy amid a squeeze on lending. Banks roximately 40% of global GDP, and USD 3 holders. Unfortunately some companies
too had to rebuild capital and their own trillion of net income. keep them to sell later on or give them
balance sheets. Fortunately, lower global to employees who then sell them back
interest rates made it possible for many into the market.
companies to re-finance their debt on
better terms, often stabilising and even MSCI WORLD AC INDEX Mergers and acquisitions (M&A)
improving cash flows. Company cash can also be spent on
2009, trl $ 2015, trl $
Since then, the global economy has Revenues 27 32
growing a business, typically by investing
chugged along at a decent, if not impres- Net Income 1.4 2.9 in new plants, upgrading facilities or deve-
sive, pace and companies have changed Dividend 0.8 1.2
loping a new product or service. However,
Market Cap 32 47
the way they use their cash. Some firms it takes time for the benefits of this invest-
and regions, such as Greece, have failed ment to materialise. So it can be quicker to
to adapt to the new reality, but broadly buy another company that seems to offer
speaking prudent financial management the sort of transformation that is required.
has been the order of the day. Dividends and share buybacks However, any type of M&A and investment
Since 2012, we have seen cash flows The proportion of this net income distri- should only be undertaken if it adds value,
that were previously used to reduce net buted to shareholders via dividends takes i.e. generates a higher return than the cost
debt or held in reserve being redirected USD 1.2 trillion out of the total cash pile, of the capital invested plus the “risk-free”
towards three main areas (or a mix of the- excluding the impact of cross holdings. rate (often the rate of interest from govern-
se): dividends and stock buybacks; acqui- Company share buybacks account for a ment bonds).
sitions (M&A) and investments into impro- further USD 700bn, based on estimates Since 2012, cash has increasingly been
6 SKAGEN F UNDS HALF Y EA R REPORT | 2015
used to finance M&A. The previous high private equity players. The graph below competition for assets and pushes prices
was 2007 when total deal value reached shows global M&A activity since 2003. It up. In the past 10 years, IPO and secondary
USD 4.2 trillion (see Bloomberg data is interesting to note that the more bullish deal activity has been running at between
below). In the first half of 2015, the total periods in the stock market coincide with USD 0.6 and 0.9 trillion a year. Here too it
value was USD 2.5 trillion, meaning this periods of high M&A activity. appears that 2015 is on track for a record
year is likely to reach or exceed the previous It is also worth noting that as private breaking year.
record – good news for investment bankers equity firms exit from companies via stock
and lawyers. market listings (known as initial public offe- Investing in the business
In addition to corporate bidders, we have rings or IPOs) they tend to recycle it back Share prices have increased a lot in recent
also seen activity from a large pool of into other M&A. This in turn creates more years, so it is harder to buy a company that
can add value. Hence, you might expect
GLOBAL M&A ACTIVITY SINCE 2003 investment in business and research and
Trillion $ Thousands
development (R&D) would be the prefer-
6 30 red option for enhancing a company’s
value. This has been a lower priority for
5 25
many companies since the financial cri-
4 20 sis, however, initially due to a need to
strengthen their finances and later to an
3 15
increasingly short-term attitude by the
2 10 market towards results. In our view, a good
management team making the right invest-
1 5
ment in organic growth typically creates
0 0 the most long-term value.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Given the recent increases in IPOs
Volume Deal count *Year to date Source: Bloomberg Finance L.P.
and M&A, we sense a lowering of the
caveat emptor principle (i.e. taking pro-
per account of the risks involved) and the
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
7
use of more aggressive tactics – factors Animal spirits so the returns available from deposits and
that have historically led to an increase in So-called ‘animal spirits’ may be one rea- government bonds compared to equities
overall risk. A McKinsey survey showed son. Human behaviour is driven by recent would continue to favour equities. That is
that corporate M&A is most successful experience. After five or six years of a bull unchanged over the last five years, but the
when executed during tough economic market, many investors feel they are finan- equity advantage has reduced as stock pri-
conditions, which often coincide with cial geniuses, as do listed companies that ces have increased.
bear markets and inexpensive asset pri- have seen their stock multiply. Nonetheless, we continue to find pock-
ces, as you might expect. Why then do In this sort of environment, we prefer ets of value among businesses that have
those engaged in corporate activity not to stand back from the noise and take a been overlooked. These sorts of companies
learn from past experience and tread with long-term view. The pace of global economic tend to stick to their knitting and let others
caution in years such as 2007 and 2015? growth and inflation levels suggest that do M&A at frothy valuations. They also tend
interest rates will remain relatively modest, to apply common sense when considering
how best to invest their cash. Given the cost
INVESTMENT HARDER-HIT BY THE CRISIS THAN GDP IN OECD of financing is likely to remain lower for long-
er, we could start to see more spending on
% %
110 110
R&D and infrastructure. This in turn would
broaden economic expansion and increase
105 105
global growth, rather than simply adding
100 100 to share valuations, and create favourable
95 95 conditions for many of our holdings.
90 90
85 85
80 80
2000 2002 2004 2006 2008 2010 2012 2014
Total real investment Real GDP Source: OECD Economic Outlook 97 database
8 SKAGEN F UNDS HALF Y EA R REPORT | 2015
SKAGEN portfolio managers always strive to achieve the best possible absolute and risk-adjusted
returns. However, since summer 2014, when the US dollar started to strengthen and a few weeks
later the oil price began to fall, our equity funds have lagged their benchmark indices. This has been
mostly due to their lower exposure to US dollar assets and higher exposure to emerging markets that
tend to be more driven by commodity prices. Although we are disappointed by this relative underper-
formance, as long term investors, we feel it is crucial not to fall into the trap of chasing shorter term
macro movements in financial markets.
Instead, we prefer to adhere to our proven investment philosophy and common sense approach,
which has generated substantial returns over time, while also taking steps to review everything we
do and making sure we improve where we can. The result of this review has been a honing of our
investment process in order to optimise each step. We believe this greater focus on methodology
and the lessons learned from past investment decisions (positive and negative) will lead to superior
performance in future.
second quarter pit stop
– more or less as planned
Global equities were flat in the period in USD and the year-to-date performance is 3%. We Long term bond yields have incre-
began 2015 with an 8%-10% expectation for annual equity returns, so things are going ased by 40 to 70 basis points, but
more or less as planned. nevertheless remain at levels that
should continue to support econo-
Germany has stood out as a negative with a 9% decline in euro terms as a stronger cur- mic activity
rency has led to a decrease in competitiveness and a market correction, following a 20%
rally in the first quarter. Energy prices have rebounded by
Chinese local shares have stood out as a positive, with a 14% increase in the second 15%-20%, but other commodities
quarter. The valuations of many Chinese companies now appear frothy and we have have fallen slightly
already seen some reversal.
In the West, stock valuations continue to offer 6.0% earnings yield, but we note that Global economic growth is on
10-year bond rates have moved upwards. In order for bonds to compete with equities in track to reach 3.5% and the direc-
yield terms we need to see 10-year bond rates move closer to 3.0%. The current level is tion of travel is similar to that in
0.9% in Germany, 2.3% in US and 0.4% in Japan. first quarter: America and Asia
Emerging markets are valued 2 percentage points higher with an earnings yield of have been slightly weaker and
8.2% and therefore offer a fairly rich risk premium to developed markets. Europe slightly stronger
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
9
SKAGEN Vekst
Exploring the narrow path to
prosperity
> B
etter developments in the
US and Japan than Europe
Photo: Bloomberg
> C
ontinuing to
concentrate the portfolio
> S
everal investments Bonheur/Ganger Rolf must now be seen more as a company within renewable energy that also has an option on a future
improvement in the rig market.
reached price
target and were sold
1 2 3 4 RISK 6 7
Slight improvement
Fund start date 1 December 1993 SKAGEN Vekst beat its benchmark index in the second quarter.
Return since start 1 713,51%
AUM EUR 938 million SKAGEN Vekst lost 2.4% while the benchmark index fell 3.8%, measured in euro. Year
Number of unitholders 72 165 to date SKAGEN Vekst has gained 6.6% versus the index which is up 13.2%. In general
the European markets performed fairly poorly in the quarter while Japan, Hong Kong
and the US performed somewhat better. In Scandinavia, Sweden and Finland were
PERFORMANCE IN EUR 2Q 15* 12 M* weak while Denmark and Norway were more or less flat.
During the quarter the fund exited Nokian Tyres, Toto, Novo Nordisk, Stolt Nielsen
SKAGEN Vekst -2,4 % 4,4%
and Sparebanken Øst. We reached our price target in all of these companies and see
MSCI Nordic/MSCI AC -3,8 % 18,8% better return potential in other companies going forward. We also exited Toshiba after
ex. Nordic
the Japanese company announced accounting irregularities (see separate section
* As of 30 June 2015 below). The remainder of Bank Norwegian was also sold out of the portfolio in the
second quarter. In total we earned 7.5 times our initial investment bought just before
the global financial crisis. In hindsight, we started to reduce the position slightly pre-
maturely, but are satisfied with the final result. We sold a large part of our position in
Royal Unibrew as we prefer the pricing of our other Danish brewer, Carlsberg.
There are several newcomers in the portfolio, the largest being Credit Suisse (see
details below). We also bought smaller positions in Danish companies Solar and H
Lundbeck AS as well as Swedish Elekta. The bulk shipping company, Golden Ocean
Group, is also new following a spin-off from Frontline 2012. In general we have con-
tinued to concentrate the portfolio and the proceeds from this have largely gone into
increasing the size of the fund’s largest holdings. The 10 and 35 largest holdings now
account for 52% and 91% of the portfolio, respectively.
At the end of the first half year, the 35 largest positions in the SKAGEN Vekst port-
folio are priced at 11 times this year’s underlying earnings versus 15 times for the
PORTFOLIO MANAGERS
benchmark. Measured in book value, the portfolio also trades at a substantial discount
to the benchmark index. We should therefore be well positioned for the rest of 2015
Geir Tjetland, Ole Søeberg, Erik Bergöö and
despite the potential disruption to markets from macroeconomic factors.
Alexander Stensrud*
* Junior manager
Beach cyclists. 1894. Detail. By Einar Hein, one
of the Skagen painters. This image belongs to the
Skagens Museum (cropped).
10 SKAGEN F UNDS HALF Y EA R REPORT | 2015Increased profitability
Credit Suisse is a newcomer in the portfo-
lio. The bank, which is the second largest
in Switzerland, has long struggled with
poor profitability and is among the worst
in Europe measured by cost/income ratio.
The bank has hired a new CEO, Tidjane Thi-
am, who started in June. We believe that
Thiam will launch a cost cutting initiative
that will substantially improve the bank’s
ON THE ONE HAND ... profitability. A reduction in the cost/inco-
me ratio from the current 85% to a more
Best despite strike moderate 65% should be attainable and in
Norwegian was by far the best contributor to the fund in Q2. At the start of the quarter turn increase the return on net capital from
there was a great deal of commotion due to the strike in late winter. The company pro- 7-8% to 15-20%. When this happens –
ved yet again that they are capable of dealing with any fallout and passengers quickly some time over the coming years – the
returned after the turbulence. Our earlier doubts about Norwegian’s long-haul initiatives bank should be priced at 1.5-2 times book
are being laid to rest. It now appears as though the long-haul part of the company will value which would double the current sha-
account for much of the future growth. Norwegian has its operations in order, but some re price to CHF 45-50.
political obstacles continue to impede developments. The company recently announced
that it is starting up routes from three US cities to the Caribbean. This will bring the
number of Norwegian’s direct routes from the US up to 31 (of which seven depart from
New York), making it the largest foreign airline company operating out of New York
measured by the number of destinations. We like the company’s operational ambitions
and await the value creation that will arise from the leasing company’s activities.
HISTORICAL PRICE DEVELOPMENT SKAGEN VEKST
2 40 2 40
1 60 1 60
Continued upside
SKAGEN Vekst
Lundin Petroleum has so far been an
80 80
extremely good investment for the fund,
40
particularly given the fall in oil price that
40
has taken place while we have held the
20 20 position. The company recently announced
MSCI Nordic/MSCI AC ex. Nordic* that their long-standing CEO, Ashley Hep-
10 10
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 penstall, will step down but will continue
to sit on the company’s board. The new
SKAGEN VEKST 2Q 2015 (MILL NOK)
man at the helm, Alex Schneiter, has been
in the Lundin system since 1993. Schneiter
5 largest contributors 5 largest purchases was the favourite to take the reins from
Norwegian Air Shuttle ASA 133 Credit Suisse Group AG 134
Lundin Petroleum AB 44 Kinnevik Investment AB-B 66
Heppenstall and we do not anticipate any
Danske Bank A/S 30 Carlsberg AS-B 50 change in direction for the company. We
Carlsberg AS-B 22 Kia Motors Corporation 45 are primarily invested in Lundin Petroleum
Golar LNG Ltd 20 Elekta AB - B shs 43
due to its 22% stake in the Johan Sverdrup
5 largest detractors 5 largest sales
Toshiba Corp -159
field. We calculate a price per Sverdrup
Norsk Hydro ASA -118
Samsung Electronics Co Ltd Pref -86 Nokian Renkaat OYJ -80 barrel of USD 9 and therefore see signifi-
Toshiba Corp -62 Toto Ltd -72 cant upside for the share.
AirAsia Bhd -52 Novo Nordisk A/S-B -65
Casino Guichard Perrachon SA -30 Norwegian Finans Holding ASA -46
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
11SKAGEN VEKST
ON THE OTHER HAND ...
New assessment
Our investments in Bonheur/Ganger Rolf
have disappointed in the last couple of
years. We underestimated the collapse
Photo: Bloomberg
in the rig market, which had a significant
impact on Fred Olsen Energy, which used
to be the companies’ main asset. The
discount to NAV in this holding company
has been huge though, and is the main
Toshiba’s CEO Hisao Tanaka at a press conference where he announced that the company has set up a committee to investi-
reason why we kept it in the portfolio. An gate allegations of improper accounting.
announcement made in late June, however,
is a game changer when it comes to the Irregularities found
valuation of the companies: TRIG (The At the start of April, Toshiba announced that they had discovered improper accounting
Renewables Infrastructure Group Limited) on infrastructure projects from 2013. In May the company announced that, as a result
acquired 49% of Fred Olsen Wind Limi- of this, they would withdraw the financial statement for the previous year and not
ted (50/50 owned by BON/GRO). TRIG is pay a year-end dividend. A committee was assigned to further investigate the case. It
buying into a company with 433 MW of appears as though these accounting irregularities may also apply to divisions other
installed windmill capacity. In this trans- than infrastructure and operations accounting for more than 10% of Toshiba’s turnover
action FOWL is priced at NOK 9.3bn, and are impacted. We chose to exit the position on these announcements and realised a
Bonheur alone will receive NOK 2.2bn in total negative return of NOK 16 million. The outcome remains to be seen, but our fear
cash, corresponding to NOK 50 per share is that the problem is more widespread than it first appears.
versus today’s share price of approximate-
ly NOK 60. In addition, they get substantial SKAGEN VEKST KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)
value in the form of renewable energy,
Company Holding size Price P/E 2015E P/E 2016E P/BV last Price target
offshore, cruise and property, amongst
Samsung Electronics 7,0% 993 000 5,8 5,9 0,9 1 500 000
other things. This is perhaps proof that the Norwegian Air Shuttle 6,2% 325 10,5 8,6 5,4 340
stock market is not efficient, since all the Continental AG 6,1% 213 13,7 11,9 4,0 275
focus has been on a lamentable rig market Norsk Hydro 5,8% 33,1 9,4 8,3 0,9 57,5
Citigroup 5,2% 55 9,2 8,0 0,8 75
while all the other values in the company
Teliasonera AB 5,0% 49 12,4 12,2 1,9 70
have been overlooked. Bonheur/Ganger Danske Bank A/S 4,8% 197 11,7 11,5 1,3 205
Rolf must now be seen more as a company Carlsberg 4,5% 608 16,0 13,5 1,8 750
within renewable energy which also has an ABB 4,2% 174 14,4 12,4 3,1 250
Kia Motors 3,6% 45300 6,3 6,1 0,8 75000
option on the future improvement in the rig
Weighted top 10 52 % 9,7 8,9 1,4 37 %
market. It may also be time for the stock Weighted top 35 91 % 10,8 9,3 1,3 47 %
market to revise its view that the Olsen Benchmark index 15,2 13,8 2,3
family does not create long-term value.
P/E may deviate from other sources when based on SKAGEN estimates.
Accounting woes each associate, both of which are planned
Air Asia´s share price was sent into a to be listed in 2017.
tailspin after an extremely negative ana- We do not see any difference between
lyst report from GMT Research. The report the current situation and a similar situation
accuses Air Asia of milking transactions when they established Air Asia Thailand a
with its money-losing associates in the few years ago. At that time net gearing was
Philippines and Indonesia, such as plane more than 4 versus the current 2.5. Air Asia
leasing and maintenance deals, to boost the is confident it can bring net gearing down
parent company’s operating cash flow. As to 2 by year end.
the associates are currently unable to pay If it turns out that the above-mentioned
their bills to the parent company, Air Asia associates are not in a position to pay their
is extending significant capital to them – bills, however, and Air Asia has to do a full
essentially gearing up – and funding its impairment of total receivables, the company
own profit and operating cash flow, the will still have value in the form of 128 owned
report said. planes which will exceed the net debt by a
Air Asia states that both associates will considerable margin. We choose to maintain
be able to pay their bills during the course our position in the company and see a consi-
of the year. The company is also working derable upside when the associates in Indo-
to raise new capital of USD 100 million for nesia and the Philippines turn profitable.
12 SKAGEN F UNDS HALF Y EA R REPORT | 2015See the portolio in its entirety at
SECURITIES PORTFOLIO SKAGEN VEKST AS OF 30 JUNE 2015 www.skagenfunds.com/vekst-portfolio
SECTOR DISTRIBUTION
Acquistion Market- Unrealised Share of Stock
Security Number value NOK * value NOK* gain/loss * fund exchange Health 3,9% Telecom 7,3%
Lundin Petroleum AB 1 800 000 177 336 243 572 66 236 2,96% Stockholm Cash 1,1%
Ganger Rolf ASA 1 213 817 124 262 78 898 -45 364 0,96% Oslo Børs Industrials Raw materials
Bonheur ASA 1 192 594 88 117 76 326 -11 791 0,93% Oslo Børs 21,4% 7,3%
Solstad Offshore ASA 2 052 746 102 753 71 230 -31 523 0,87% Oslo Børs
Energy 8,0%
GCL-Poly Energy Holdings Ltd 30 000 000 59 320 54 307 -5 013 0,66% Hong Kong
Rec Silicon ASA 32 000 000 47 398 53 888 6 490 0,65% Oslo Børs Finance Consumer
16,9% staples
DOF ASA 5 762 213 110 022 34 573 -75 448 0,42% Oslo Børs
Minor items 256 220 41 807 -214 413 0,51% 9,8%
Total Energy 965 429 654 602 -310 827 7,96% Consumer
discretionary
Norsk Hydro ASA 14 542 679 373 563 480 636 107 072 5,84% Oslo Børs 13,4%
Kemira OYJ 850 000 81 883 76 473 -5 411 0,93% Helsinki IT 11,0%
OCI Co Ltd 39 000 33 003 24 618 -8 384 0,30% Seoul
Minor items 20 776 18 601 -2 175 0,23%
GEOGRAPHICAL DISTRIBUTION
Total Raw materials 509 225 600 327 91 102 7,30%
EMEA 1,3% Japan 2,0%
Norwegian Air Shuttle ASA 1 561 410 124 109 507 302 383 193 6,17% Oslo Børs
ABB Ltd 2 070 000 289 197 343 206 54 010 4,17% Stockholm Cash 1,1% Peripeheral EU 3,9%
Koninklijke Philips NV 1 379 643 279 529 277 282 -2 248 3,37% Amsterdam North America 6,8%
Wilh. Wilhelmsen Holding ASA 874 858 62 479 149 163 86 685 1,81% Oslo Børs Nordic 55,4%
FLSmidth & Co A/S 311 000 104 468 117 743 13 275 1,43% Copenhagen Asia ex
Japan
AirAsia Bhd 27 960 000 142 496 89 467 -53 030 1,09% Kuala Lumpur
13,3%
Golar LNG Ltd 190 000 58 722 70 327 11 605 0,85% NASDAQ
Solar AS - B Shs 104 000 40 099 44 557 4 458 0,54% Copenhagen
Frontline 2012 Ltd 1 000 000 41 502 41 000 -502 0,50% Unlisted
Eurozone
Danieli & Officine Meccaniche SpA 312 962 41 406 37 515 -3 891 0,46% Italy
16,3%
YIT Oyj 550 125 32 137 31 114 -1 023 0,38% Helsinki
Goodtech ASA 2 055 949 46 750 25 288 -21 462 0,31% Oslo Børs
Minor items 61 826 28 590 -33 237 0,35%
Total Industrials 1 324 721 1 762 554 437 833 21,42%
Effective 1/1/2014, the fund’s investment manda-
Continental AG 269 250 149 278 502 657 353 379 6,11% Frankfurt te changed from investing a minimum of 50% of its
Kia Motors Corporation 932 000 285 845 296 120 10 275 3,60% Seoul assets in Norway to investing a minimum of 50% of
Volvo AB 2 590 000 219 106 253 325 34 219 3,08% Stockholm its assets in the Nordic countries. This means that
Nippon Seiki Co Ltd 273 000 28 148 42 617 14 470 0,52% Tokyo returns prior to the change were achieved under dif-
ferent circumstances than they are today. The fund’s
Minor items 33 138 9 057 -24 080 0,11%
benchmark index prior to 1/1/2014 was an evenly
Total Consumer discretionary 715 513 1 103 776 388 263 13,42%
composed benchmark index consisting of the Oslo
Carlsberg AS-B 518 000 323 926 369 576 45 650 4,49% Copenhagen Stock Exchange Benchmark Index (OSEBX) and the
Casino Guichard Perrachon SA 352 100 240 762 211 246 -29 516 2,57% Paris MSCI All Country World. The benchmark index prior
Oriflame Cosmetics AG 828 912 107 386 103 902 -3 484 1,26% Stockholm to 1/1/2010 was the Oslo Stock Exchange Bench-
mark Index (OSEBX).
Sodastream International Ltd 365 000 82 946 61 472 -21 474 0,75% NASDAQ
Yazicilar Holding AS 689 169 23 544 41 583 18 039 0,51% Istanbul
Minor items 15 631 17 590 1 959 0,21%
Total Consumer staples 794 196 805 370 11 174 9,79%
Roche Holding AG-Genusschein 80 198 173 752 177 914 4 162 2,16% Zürich
Medi-Stim ASA 1 465 625 18 313 56 133 37 820 0,68% Oslo Børs
Elekta AB - B shs 800 000 42 984 39 731 -3 253 0,48% Stockholm
Photocure ASA 626 466 25 235 22 803 -2 432 0,28% Oslo Børs
Minor items 22 672 20 501 -2 170 0,25%
Total Health 282 956 317 083 34 127 3,85%
Citigroup Inc 983 800 352 249 425 054 72 805 5,17% New York
Danske Bank A/S 1 710 000 198 532 395 756 197 224 4,81% Copenhagen
Credit Suisse Group AG 638 556 131 314 138 754 7 440 1,69% Zürich
SBI Holdings Inc 1 139 000 96 634 123 164 26 530 1,50% Tokyo
Tribona AB 2 851 004 94 342 103 419 9 078 1,26% Stockholm
Sberbank of Russia Pref 9 620 000 139 234 64 980 -74 254 0,79% Moscow
Hitecvision AS 793 668 7 193 53 176 45 982 0,65% Unlisted
Korean Reinsurance Co 600 000 20 468 51 762 31 293 0,63% Seoul
Raiffeisen Bank International AG 305 054 68 721 35 042 -33 679 0,43% Vienna
Total Finance 1 108 688 1 391 107 282 418 16,91%
Samsung Electronics Co Ltd Pref 82 850 494 978 577 026 82 047 7,01% Seoul
SAP SE 497 100 212 798 274 048 61 251 3,33% Frankfurt
PSI Group ASA 3 796 612 43 431 32 081 -11 349 0,39% Oslo Børs
Minor items 22 682 20 099 -2 583 0,24%
Total IT 773 889 903 255 129 366 10,98%
Teliasonera AB 8 900 000 408 471 413 952 5 481 5,03% Stockholm
Kinnevik Investment AB-B 736 009 169 794 184 164 14 370 2,24% Stockholm
Total Telecom 578 265 598 115 19 851 7,27%
Total equity portfolio* 7 052 882 8 136 190 1 083 308 98,89%
Disposable liquidity 91 298 1,11%
Total share capital 8 227 489 100,00%
Base price as of 30-06-2015 1 948,6041
* Figures in 1 000 NOK.
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
13Uphill struggle for
emerging markets and
SKAGEN Global
A world of opportunities
commodities
The negative return in the second quarter was mainly due to the weak
> P
erformance hurt by weak performance of several of the fund’s emerging markets companies as
emerging markets and well as headwinds for the commodities segment. On the other hand,
headwinds for Samsung several of the holdings within the financial sector contributed positively.
Electronics and
commodities This bodes well for the future as the fund has a relatively high, but well-diversified
exposure to global companies within the banking, insurance and real estate sector.
> C
itigroup and AIG among On a macro level, the stock exchange climate in the US was dominated by speculation
the best contributors around the next interest rate hike by the Federal Reserve. After nine consecutive quarters
of positive returns, the broad-based S&P 500 market index fell by 0.2% in the quarter.
> T he portfolio trades at Weak economic data for the first quarter was attributed to an unusually hard winter.
an attractive discount Despite better employment figures from the US in the second quarter, the strength of the
economic recovery remains unclear. Our view remains that the US stock market appears
to the world index relatively fully valued, and the fund has maintained its underweight in the US, which
currently amounts to 19% of the fund.
1 2 3 4 RISK 6 7
Following the stock exchange jubilation in the first quarter, the red return figures spread
Fund start date 7 August 1997 to the European SXXP index, which declined 4.0% in the second quarter. An unexpec-
ted rise in interest rates from record lows in Germany in addition to renewed concerns
Return since start 1154,25%
around the possibility of a Greek default at the end of June dampened the enthusiasm.
AUM EUR 4 018 million
Number of unitholders 87 385 The best and the worst
The fund’s holdings in the US financial giants, Citigroup and AIG, were among the top
positive contributors in the quarter. The market is finally starting to open its eyes to
PERFORMANCE IN EUR 2Q 15* 12 M* the operational improvements that we have long since predicted. In addition, the huge
potential for capital repayment via buybacks and dividends – another of our price-driving
SKAGEN Global -3,7% 10,2%
arguments – is becoming increasingly clear to other market participants.
MSCI ACWI -3,5% 24,0% Samsung Electronics fell by 10% and was clearly the largest detractor from the
* As of 30 June 2015. fund’s performance in the quarter. The market disregarded the improvement in profits
from mobile phones and semiconductors since the previous quarter, as expectations
had dislocated from reality. We believe that the long-term outlook is still good and the
valuation is particularly attractive at present. Another company that is once again on the
losing side is Norsk Hydro which has declined around 30% since the peak in winter due
to a downturn in the aluminium market. We believe that the market has overreacted in
this case and, thanks to a strong balance sheet, we think there is a good possibility for
SKAGEN GLOBAL 2Q 2015 (MILL NOK)
PORTFOLIO MANAGERS
Knut Gezelius, Søren Milo Christensen and 5 largest contributors 5 largest purchases
American International Group Inc 198 Google Inc CLASS C 474
Chris-Tommy Simonsen Cheung Kong Property Holdings Ltd 152 Tyson Foods Inc 393
Citigroup Inc 134 Carlsberg AS-B 314
General Electric Co 94 Haci Omer Sabanci Holding AS 203
From the moor north of Skagen, 1885. Detail. By P.S. Krøyer,
Lundin Petroleum AB 71 CK Hutchison Holdings Ltd 180
one of the Skagen painters (cropped).
5 largest detractors 5 largest sales
Samsung Electronics Co Ltd Pref -317 Citigroup Inc -626
General Motors Co -138 American International Group Inc -280
Norsk Hydro ASA -132 Lenovo Group Ltd -276
Tyco International Plc -97 Technip SA -259
Tata Motors Ltd-A- DVR -94 Volvo AB -239
14 SKAGEN F UNDS HALF Y EA R REPORT | 2015Photo: iStockphoto
Photo: Bloomberg
The average American drinks over 160 litres of soda a year,
but chicken consumption per capita has actually increased by
10% over the past three years and is estimated to be 41kg in
2015. Against this background, it is possible that the market
undervalues the long-term earnings potential of Tyson Foods.
higher dividends to shareholders. and less volatile cash flows. Food manu- Sabanci Holding
The fund bought three new companies facturers specialised in pre-packaged food We have followed the adage “buy low,
and exited four in the quarter, bringing therefore enjoy twice as high P/E multiples sell high” and brought the Turkish cong-
the number of holdings in the portfolio to as protein manufacturers. lomerate Sabanci Holding back into the
59. The new companies are Tyson Foods, We think that the P/E of the stock will SKAGEN Global portfolio. Regular readers
Sabanci Holding and Cheung Kong Property be revised upwards as Tyson Foods makes may recollect that SKAGEN Global divested
Holding. the transition from protein manufacturer Sabanci Holding in the fourth quarter of
to food producer. The market has not yet 2014. Since then the share price has fallen
From protein to pre-packaged food priced in a multiple expansion. We cannot by 15% and the total return has lagged
US Tyson Foods, established in 1935 and predict precisely when this will happen, but the index by around 25%, mainly due to
with a market capitalisation of USD 17 bil- we consider it likely that it will happen in market turbulence related to the Turkish
lion, is one of the world’s largest producers the next couple of years. As long-term inve- elections. The fall in share price has given
of chicken and beef. Under the leadership stors we have the opportunity to buy at an us an opportunity to buy into the company
of CEO Donnie Smith, Tyson Foods acqui- attractive price and get paid dividends whi- again at an attractive valuation.
red food producer Hillshire Brands for USD le we wait for the appreciation. In addition, The family-controlled conglomerate has
eight billion last year. The purpose of the the impending structural shift in American historically been good at allocating capi-
acquisition was to strategically reposition eating habits will be favourable for Tyson tal, as illustrated by an average return on
Tyson Foods, from being a cyclical protein Foods. The obesity epidemic in the US has equity of 16% for the underlying assets
manufacturer to a stable food producer, reached alarming levels and has prompted (with the exception of the energy segment).
whereby pre-packaged food represents the government to publish new consumer The assets include banking and insuran-
a larger share of sales. We estimate that directives explicitly recommending more ce, in addition to energy and engineering
pre-packaged food will constitute nearly protein and less sugar in food. in 12 Turkish companies. Our price target
40% of the profits by as early as 2017, a With this in mind, it is possible that the indicates a 40% upside based on organic
marked increase from 15% in 2014. Meat market also underestimates the company’s growth in the underlying assets, a possible
production is a cyclical market with relati- long-term earnings potential. Time will tell IPO of the energy segment and increased
vely small margins, which means that pure whether Tyson Foods will be a feather in dividends from today’s relatively low 1.3%
meat producers trade at a P/E of around SKAGEN Global’s cap. dividend yield.
10. Pre-packaged food has higher margins
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
15SKAGEN GLOBAL
No longer undervalued
In May, portfolio company Cheung Kong
Hutchison Holding spun off its property
division to shareholders under the name
During the quarter we raised our stake in Google to about 2.5% of the portfolio. With USD 60bn in cash and strong cash flow, Cheung Kong Property Holding. The market
we see a limited downside and an upside of 30% from today’s levels. Pictured: An attendee at Google’s Annual Developers
Conference on 28 May 2015 shows off his mobile device with an Android Pay icon, Google’s newly unveiled payment services. valuation of Cheung Kong Property Holding
proved to be high and in our opinion the
share is not undervalued at the listed price
so we sold the position.
Google ket is far too short-sighted and that the In the second quarter we sold our posi-
During the quarter we increased our expo- shares do not price in the earnings growth tions in Technip, Talanx and Raiffeisen
sure to the US search engine giant, Google, that lower capital costs will generate from Bank. Despite the sharp fall in oil prices,
to around 2.5% of the portfolio. In absolute 2017-18 onwards. With net cash of USD 60 the French oil services company Technip
terms, Google’s share price has remained billion and strong growth in free cash flow, has surprised the market positively so
relatively stable over the past 12 months. Google has limited downside and at least far this year. We sold our last shares after
We believe that in Google’s case, the mar- 30% upside from current levels. the price rose by around 30% and thus
reached our target price.
The German insurer Talanx has gene-
HISTORICAL PRICE DEVELOPMENT SKAGEN GLOBAL
rated an annual return of 25% since SKA-
100 100
GEN participated in the IPO in November
80 SKAGEN Global 80
2012. After the share price increased by
60%, we believe that the company is no
40 40
longer undervalued relative to its current
20 20
strategy. We also sold our position in Raif-
feisen Bank in favour of more attractive
10 MSCI World AC Index 10
investment opportunities elsewhere in
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
the portfolio.
SKAGEN GLOBAL KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)
Well positioned
Company Holding size Price P/E 2015E P/E 2016E P/BV last Price target The portfolio reflects SKAGEN’s value-ba-
CitiGroup 6,5% 55 10,0 9,3 0,8 75 sed investment philosophy and trades at
Samsung Electronics 6,1% 993 000,0 6,5 6,0 0,9 1 500 000
an attractive discount to the world index.
AIG 5,3% 62 12,6 11,0 0,8 90
General Electric 4,9% 26,6 19,7 16,7 2,5 34 Our 35 largest holdings have an average
Nordea 3,5% 103,4 12,1 11,9 1,6 150 2016 P/E ratio of 10.6 compared with 14.6
Roche 3,1% 262,0 18,4 16,9 11,4 380 for the index, in other words a discount of
LG Corp 2,8% 61 800 10,7 9,5 0,9 72 000
State Bank of india 2,6% 263 9,8 8,0 1,2 400
27%. Overall, SKAGEN Global has genera-
DSM 2,5% 52,0 20,1 17,4 1,5 65 ted 10.2% return in the first six months of
Microsoft 2,5% 44,2 17,2 16,0 4,0 58 the year and the fund is well positioned to
Weighted top 10 40 % 11,3 10,2 1,2 39 % achieve its goal of a return of at least 15%
Weighted top 35 81 % 11,9 10,6 1,2 34 %
Benchmark index 16,4 14,6 2,1
annually in absolute terms.
P/E may deviate from other sources when based on SKAGEN estimates.
16 SKAGEN F UNDS HALF Y EA R REPORT | 2015See the portolio in its entirety at
SECURITIES PORTFOLIO SKAGEN GLOBAL AS OF 30 JUNE 2015 www.skagenfunds.com/global-portfolio
SECTOR DISTRIBUTION
Acquistion Market- Unrealised Share of Stock
Security Number value NOK * value NOK* gain/loss * fund exchange Consumer
Energy 3,2% staples 3,7%
Lundin Petroleum AB 3 293 160 367 913 445 497 77 585 1,26% Stockholm
Cash 1,1% Telecom 4,3%
Kazmunaigas Exploration GDR 3 529 139 415 879 274 890 -140 990 0,78% London Int
BP Plc 4 269 875 213 135 223 364 10 229 0,63% London Finance Health
BP Plc ADR 598 207 174 952 188 193 13 241 0,53% New York 26,3% 7,8%
Total Energy 1 171 879 1 131 944 -39 935 3,21%
Koninklijke DSM NV 1 955 246 810 782 895 526 84 744 2,54% Amsterdam IT 12,0%
Heidelbergcement AG 1 176 994 389 487 739 813 350 326 2,10% Frankfurt
Industrials
Norsk Hydro ASA 16 945 242 474 549 560 040 85 491 1,59% Oslo Børs
16,0%
Akzo Nobel NV 892 610 292 845 515 296 222 451 1,46% Amsterdam Consumer
UPM-Kymmene Oyj 3 099 638 291 644 433 019 141 375 1,23% Helsinki discretionary
Raw 12,8%
Lundin Mining Corp 12 338 063 366 915 396 892 29 978 1,13% Toronto
materials 12,9%
OCI Co Ltd 434 153 385 027 275 138 -109 889 0,78% Seoul
Mayr-Melnhof Karton AG 303 520 140 593 274 254 133 661 0,78% Vienna
Ternium SA ADR 1 994 417 298 074 272 565 -25 509 0,77% New York GEOGRAPHICAL DISTRIBUTION
Lundin Mining Corp SDR 5 327 379 147 971 171 207 23 236 0,49% Stockholm
Total Raw materials 3 597 887 4 533 750 935 863 12,87% Frontier Markets 2,0% South America 2,0%
Japan 1,0% EMEA 2,1%
General Electric Co 8 170 740 1 616 001 1 719 970 103 969 4,88% New York
LG Corp 2 304 821 645 552 1 002 977 357 424 2,85% Seoul Cash 1,1% Peripheral EU
CK Hutchison Holdings Ltd 6 515 098 539 504 753 052 213 549 2,14% Hong Kong 5,8%
Koninklijke Philips NV 2 825 548 526 915 568 444 41 528 1,61% Amsterdam North Nordic
America 13,9%
Tyco International Plc 1 751 162 198 083 531 204 333 121 1,51% New York
35,7%
Valmet Corp 3 106 627 212 961 273 629 60 668 0,78% Helsinki
Prosegur Cia de Seguridad Sa 6 238 240 202 461 270 082 67 621 0,77% Madrid Eurozone
Autoliv Inc 258 314 88 438 237 990 149 553 0,68% New York 14,2%
China Communications Services Corp Ltd 41 861 881 150 954 166 527 15 573 0,47% Hong Kong
Asia ex
Autoliv Inc SDR 130 595 45 327 120 338 75 010 0,34% Stockholm Japan 22,3%
Total Industrials 4 226 197 5 644 213 1 418 016 16,02%
General Motors Co 3 315 380 473 410 867 059 393 650 2,46% New York
Gap Inc/The 1 775 497 435 590 533 906 98 317 1,52% New York
Kingfisher Plc 12 302 903 410 292 531 032 120 739 1,51% London
Volvo AB 5 250 655 407 180 512 695 105 515 1,46% Stockholm
Comcast Corp 1 077 693 147 207 506 456 359 249 1,44% NASDAQ
Hyundai Motor Co Pref (2pb) 670 632 257 703 495 837 238 134 1,41% Seoul
Tata Motors Ltd-A- DVR 11 563 913 231 336 372 642 141 306 1,06% Bombay
Toyota Industries Corp 785 972 140 281 352 552 212 271 1,00% Tokyo
Minor items 191 412 347 489 323 684 -23 804 0,90%
Total Consumer discretionary 2 850 487 4 495 864 1 645 377 12,76%
Tyson Foods Inc 1 314 961 393 017 448 546 55 529 1,27% New York
Carlsberg AS-B 460 833 314 302 328 892 14 590 0,93% Copenhagen
Unilever NV-Cva 911 620 191 767 300 127 108 359 0,85% Amsterdam
Yazicilar Holding AS 3 577 860 86 656 218 002 131 346 0,62% Istanbul
Total Consumer staples 985 742 1 295 567 309 824 3,68%
Roche Holding AG-Genusschein 495 108 597 625 1 101 354 503 728 3,13% Zürich
Sanofi 964 732 601 027 754 694 153 667 2,14% Paris
Teva Pharmaceutical-Sp ADR 1 074 283 331 351 499 446 168 095 1,42% NASDAQ
Varian Medical Systems Inc 613 370 313 599 406 533 92 933 1,15% New York
Total Health 1 843 603 2 762 026 918 423 7,84%
Citigroup Inc 5 233 467 1 198 400 2 272 502 1 074 102 6,45% New York
American International Group Inc 3 816 021 1 013 636 1 855 769 842 133 5,27% New York
Nordea Bank AB 12 398 133 870 977 1 222 357 351 380 3,47% Stockholm
State Bank of India 22 526 330 573 039 731 609 158 570 2,08% India
Goldman Sachs Group Inc 439 836 391 585 724 709 333 123 2,06% New York
NN Group NV 3 052 161 549 926 677 162 127 237 1,92% Amsterdam
Storebrand ASA 13 625 168 468 375 440 638 -27 737 1,25% Oslo Børs
EFG-Hermes Holding SAE 18 826 600 238 806 268 365 29 559 0,76% Cairo
Columbia Property Trust Inc 1 297 237 254 227 251 180 -3 046 0,71% New York
Irsa Sa ADR 1 763 696 146 619 248 250 101 630 0,70% New York
Minor items 7 416 393 489 179 585 226 96 048 1,66%
Total Finance 6 194 769 9 277 768 3 082 999 26,33%
Samsung Electronics Co Ltd Pref 251 657 609 537 1 759 638 1 150 101 4,99% Seoul
Microsoft Corp 2 505 570 437 371 870 543 433 172 2,47% NASDAQ
Google Inc CLASS C 162 112 563 208 668 231 105 023 1,90% NASDAQ
Lenovo Group Ltd 29 495 300 221 697 321 468 99 771 0,91% Hong Kong
Samsung Electronics Co Ltd 35 003 316 100 312 529 -3 572 0,89% Seoul
Google Inc CLASS A 45 315 79 242 193 197 113 955 0,55% NASDAQ
Minor items 24 968 86 209 61 241 0,24%
Total IT 2 252 123 4 211 813 1 959 690 11,95%
China Unicom Hong Kong Ltd 39 506 972 374 491 489 118 114 627 1,39% Hong Kong
Vimpelcom Ltd-Spon ADR 7 361 234 539 474 285 820 -253 654 0,81% New York
First Pacific Co Ltd 42 834 923 270 660 284 286 13 626 0,81% Hong Kong
Indosat Tbk PT 65 422 055 226 138 154 134 -72 003 0,44% Indonesia
China Unicom Hong Kong Ltd ADR 1 144 875 105 570 141 601 36 030 0,40% New York
Minor items 149 379 147 306 -2 073 0,41%
Total Telecom 1 665 712 1 502 266 -163 446 4,26%
Total equity portfolio* 24 788 398 34 855 211 10 066 812 98,93%
Disposable liquidity 376 173 1,07%
Total share capital 35 231 383 100,00%
Base price as of 30-06-2015 1 374,8063
* Figues in 1 000 NOK.
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
17SKAGEN Kon-Tiki
Leading the way in new waters
Photo: Bloomberg
> O
ur contrarian bet in un-
popular Petrobras paid off.
> Three of our largest holdings A new position in the fund, Sberbank, is best in class among Russian banks. Pictured here, a customer sits in the reception
of a Sberbank branch in Almaty, Kazakhstan.
were a drag on performance.
> W
orking to refine the sell
discipline in the fund.
Staying the course
1 2 3 4 5 RISK 7 SKAGEN Kon-Tiki fell 4.9% during Q2, compared with a decline of 3.2%
Fund start date 5 April 2002 for the emerging markets (EM) index, measured in EUR. Year-to-date
Return since start 518,92% the fund is up 5.8%, lagging the index by 5.9%.
Assets under management EUR 4 985 million
Number of unitholders 70 785
Three of our largest holdings, Great Wall and undervalued stocks will lead to satis-
Motor, Hyundai Motor and Samsung factory returns in the long run. The portfo-
Electronics—accounting for a combined lio consists of good companies trading at
PERFORMANCE IN EUR 2Q 15* 12 M*
21% of the portfolio at the beginning of a solid discount to the market, and to our
SKAGEN Kon-Tiki -4,9 % 2,0% the quarter—were a drag on performance estimate of intrinsic value. While we cannot
MSCI Emerging Markets -3,2 % 16,5% in the second quarter. On the positive side, predict the investing crowd’s short-term
* As of 30 June 2015
our contrarian bet in Brazilian oil major preferences, we are confident that in the
Petrobras paid off handsomely. Hong Kong long run company fundamentals will be
based asset manager Value Partners, and more important than fleeting popularity.
Brazilian meat producer Marfrig also per- That being said, we are constantly look-
formed well. ing for ways to improve our investment
We are certainly not satisfied with process.
recent performance, but continue to
believe that our time tested approach of
identifying unpopular, under-researched
SKAGEN KON-TIKI KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)
Company Holding size Price P/E 2014 P/E 2015E P/BV last Price target
Samsung Electronics 8,0% 993 000 6,4 6,0 0,9 1 500 000
Hyundai Motor 7,7% 102 000 3,6 3,9 0,4 200000
PORTFOLIO MANAGERS State Bank of India 4,1% 262,8 11,5 8,0 1,2 450
Kristoffer Stensrud, Knut Harald Nilsson, Mahindra & Mahindra 4,1% 1 282 24,1 12,8 2,9 2000
Sabanci Holding 3,8% 10 9,9 8,4 1,1 14
Cathrine Gether, Erik Landgraff and
Bharti Airtel 3,5% 420 32,4 21,0 2,7 450
Hilde Jenssen ABB 3,2% 175,1 21,1 14,6 2,9 250
Naspers 2,7% 1 895 68,1 37,9 10,0 2250
Great Wall Motor 2,6% 38 11,5 7,8 3,0 60
Skagen reef’s lightship, 1892. Detail. By Carl Locher,
one of the Skagen painters. The picture is owned by Richter Gedeon 2,4% 4 200,0 31,7 15,3 1,4 7500
the Skagens Museum. (Cropped) SBI Holdings 1,9% 1 686 8,0 13,0 1,0 3 000
Hitachi 1,9% 806,8 16,1 9,5 1,3 1200
Weighted top 12 46 % 8,7 7,8 1,0 57 %
Weighted top 35 75 % 11,6 8,4 1,1 57 %
Benchmark index 13,8 12,3 1,6
P/E may deviate from other sources when based on SKAGEN estimates.
18 SKAGEN F UNDS HALF Y EA R REPORT | 2015SKAGEN KON-TIKI
SPRING CLEANING NEW POSITIONS:
One area of improvement that we are addressing is selling discipline. When to sell is While we exited a large number of posi-
a notoriously difficult question, pitching your adherence to a set target price against tions in the quarter, we are always on
the dangers of selling your winners and keeping the losers. For SKAGEN Kon-Tiki, the lookout for the next great investment
there are three major reasons for selling a stock. opportunity. We entered three new posi-
tions, namely Sberbank, China Shipping
First, in those cases where expectations serve us, and if we are consistent in updating Development and Eros International
collide with reality in unexpected ways. our target prices they should be adhered to. Media.
Experience has taught us that when our Challenges such as these are part of what
investment thesis does not play out, the makes investing such a fascinating disci- Sberbank is best in class among Russi-
stock should be sold even if it has a lower pline, and why it is arguably more art than an banks and could benefit as inflation
valuation than when we first bought it. science. decelerates and the Russian economy sta-
A good example is Aveng, the South Afri- To further complicate the picture, deci- bilises. We bought the preference shares
can construction company. Despite realising sion-making can be impacted by flows. In when index funds were forced to sell as
that our investment thesis was not playing particular, we have found that maintaining a result of MSCI index exclusion and the
out as expected, we have been dragging selling discipline during periods of large preference shares traded at a historical
our feet due to low valuation and hopes of inflows is crucial to avoid delays in dispo- discount to the ordinary shares.
a reversal in the company’s fortunes. Not a sing of lower conviction ideas. China Shipping Development is a
recipe for investment success. Putting your money where our mouth is, Shanghai-based shipping company focu-
Second, if we find better investment we have focused on exiting smaller positions sed on Dry Bulk and Tank. Its shares are
opportunities elsewhere, capital should where conviction—rather than size or liquidi- both A- and H-share listed, with the latter
be redeployed to companies with a higher ty constraints—explains the sizing. We sold selling at a big discount (P/B 0.75x vs.
risk-adjusted upside. out of Siem Offshore, Exxaro, Yingli and MRV 1.8x). We believe current valuation only
Third—and this is the most difficult because of adverse developments relative factors in tanker improvement, despite
one—we should sell when the stock app- to our investment case. signs that Dry Cargo is close to the bot-
roaches our target price. Sounds easy, On a more positive note, Value Partners, tom. With no fleet growth this year or next,
but the difficulty arises when you sell Skyworth, Harbin Electric and Kiwoom and Chinese coal and iron ore inventories
great companies because of a run-up in reached their price targets, resulting in our at record lows, earnings could surprise on
price. Factor in transaction costs, and exit. As a result, we have reduced the num- the upside. In the medium-to-long-term
selling within a few points of our tar- ber of positions in the portfolio from 93 to we think that state-owned enterprise
get price is not always the right answer. 88 during the quarter. (SOE) reform and thus improved gover-
On the other hand, the market is there to nance will be important drivers of higher
returns.
HISTORICAL PRICE DEVELOPMENT SKAGEN KON-TIKI
Eros International Media is a leading
co-producer, acquirer and distributor of
80 SKAGEN Kon-Tiki 80
60 60
Indian language films. The company has
40 40
a strong position in a growing industry,
and is led by an experienced team. Trading
20 20 at 14x next year’s earnings at the time of
MSCI EM Index
our purchase, we did not pay much for our
1 10 favourable expectations.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
S K A G E N F U N DS H A LF Y E A R RE PORT | 2 0 1 5
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