Uncertainty presents investment opportunity, says Skagen
Skagen Funds, the specialist fund manager with more than €12.67bn of assets under management, believes three economic factors – the eurozone crisis, uncertainty over the US’ path to recovery and the inflationary outlook for emerging markets – could provide potential rewards for equity investors.
In Europe, where the eurozone crisis has driven valuations to historical lows – the MSCI Europe index is currently trading at a discount of over 35% to the MSCI USA equivalent on a Shiller P/E basis – companies with a strong track record for value creation and cash generation are highlighted as looking attractive, particularly those with incremental earnings coming from outside Europe.
Speaking at Skagen’s New Year conference in London, Søren Milo Christensen, a portfolio manager in the Skagen Global team which oversees just over €4bn of assets, said: “While the current climate is clearly a cause for concern, it is important to focus on the long-term value drivers of individual European companies, many of which are significantly undervalued; they are not solely reliant on the fortunes of the European economy and often have a global reach. By taking a bottom-up approach it is possible to identify companies that offer significant value creation at very reasonable prices.”
Further investment opportunities can also currently be found in the US banking sector, which appears significantly undervalued as a result of its unpopularity. Christensen argues that unlike most European banks where balance sheet transparency remains poor, their US peers have written-down asset values and are relatively well capitalised, and less exposed to Southern European sovereign debt.
Skagen also sees increasing value in emerging markets where poor returns in 2011 and an outflow of funds similar to that seen in 2008 have driven valuations to historically low levels.
With inflationary pressure easing in most emerging market countries and healthy government debt levels providing room for monetary and fiscal easing, emerging markets are now in a strong position relative to developed economies and therefore offer long-term investment opportunities, with India and China in particular looking attractive.
“It is very important to take a long-term view and consider the investment case for companies on an individual basis, rather than within the context of the global financial crisis.
“There are many companies that, despite being unpopular and therefore often under-valued, have strong track records, excellent long-term prospects and are currently available at very attractive prices.”