Scandinavia offers strong returns for long-term oriented investors
Interview with Mike Judith, Vice President at DNB Asset Management (published in FONDS exklusiv September/October 2012)
FONDS exklusiv: Mr. Judith, DNB Asset Management is at home in Scandinavia. Why is now a good time for investors to invest in the region's equity markets?
MIKE JUDITH: While the Scandinavian countries are small economies, they always had to think outside the box and sell their products overseas. As a result, Scandinavian companies act as truly global players and have built a multinational client network across the continents. This is particularly true for the emerging growth markets - to which Scandinavian companies have an excellent exposure, as it is illustrated by our investment in Novo Nordisk. At the same time, Scandinavia also offers the right economic and political framework. The countries exceeded the economic growth forecasts even during the crisis; they have healthy public finances, stable social conditions and strong domestic markets. All this benefits investors seeking to protect themselves against the uncertainties in the euro zone. Moreover, the Scandinavian markets offer a home to many profitable companies with very healthy balance sheets, relatively low leveraging being one favourable aspect, and attractive valuations to boot. Having said this, one must also confess that the rather patchy outlook for the global economy will also lead to short-term volatility in the Nordic space: The markets therefore offer good return opportunities particularly to long-term oriented investors.
FONDS exklusiv: With DNB Scandinavia, you offer a fund solution that invests in the Nordic market. What is the portfolio manager’s strategy?
MIKE JUDITH: Co-portfolio managers Karl G. Høgtun and Kjell Morten Hjørnevik manage the fund from Oslo; being located on the ground, the two fund managers see behind the curtain and screen for the specific strengths of Scandinavian companies. The DNB Scandinavia fund’s top assets include big, internationally well positioned companies like the fashion retailer Hennes & Mauritz or for instance the commercial vehicle manufacturer Volvo. The Swedish manufacturer and supplier again reported record sales and profitability in 2012 and will benefit from a well-filled order book on the back of a growing US demand going forward. The pharmaceutical company Novo Nordisk is another example. The company, which, incidentally, has operated in China since the 1960s and is considered market leader in diabetes medications in China and India nowadays. Alongside large caps, Karl and Kjell Morten invest selectively in small, highly innovative companies with excellent development potential such as the browser developer Opera. The company is particularly well positioned in the emerging markets. It has a 30 per cent market share in Asia and a 65 per cent share in Africa, another future growth market.
FONDS exklusiv: Finally, can you also comment on the currency component of investments in the Nordic countries?
MIKE JUDITH: Of course. As an oil exporting country, Norway has an exceptional economy in that it is driven by its oil and gas exports. Currently, however, a volatile oil price does not always negatively affect the local currency - on the contrary, the Norwegian krona has appreciated recently in spite of easing oil prices. Generally speaking, investors in stocks from Norway and Sweden can thus invest in strong foreign currencies. But this aspect of the krona currencies must not be overvalued. Well-diversified equity portfolios such as the DNB Scandinavia fund reflect Nordic companies which operate globally and generate only a portion of their revenues in their respective local currencies. In fact, their exposure to various currency areas translates into a well-diversified foreign exchange risk profile – just another positive factor for our investors.
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