DNB Technology - Portfolio Manager's commentary 07/2013

The fund’s strong performance over the last five years is in a large part due to a very high and strong focus on valuation. Going back to last year’s results, the only year with negative performance, I would highlight not owning Apple in the second half as one of the reasons why we were slightly behind the index. This year, we have gained by not owning Apple, once again showing that discipline in investment process is important. I would also like to highlight as we go into the second half that currently our largest position is Samsung, which is a very unpopular stock at this point in time. Samsung has been a strong share gainer for 10 years in mobile phones, televisions and memory. This company is currently trading at six times earnings and we feel that the earnings estimate is fair. Results so far this year have been strong. We are up eight per cent more than the index, and total performance for the fund is 18 per cent. All the strong performance apart from not owning Apple has been being long Activision, being long Ubisoft, Renewable Energy Corp and Dell.

As we enter the second half of 2013, the risk premium in the market is still high. The average TMT stock is trading at 13 times earnings, which is very attractive given the interest rate at this point in time. Looking on how the market looks upon the universe, it is clear to us that people anticipate smart phone earnings to halve. Both Apple and Samsung are trading almost at six times earnings ex cash. When we look at the best opportunities for the second half, these two stocks are among them. But we would also highlight that there will be a very interesting second half for products going into the living room. Both Microsoft with the new Xbox and Sony with the new PlayStation are having a launch. In addition we expect Apple and Google to launch gaming machines going into the living room. We have positioned us for this event by buying into some of the gaming companies, more specifically Gameloft and Ubisoft.