Kristoffer Stensrud, co-founder of Skagen Funds, and lead portfolio manager of the Skagen Kon-Tiki fund, has shared his views on the sector during a recent visit to the Stavanger, Norway based manager
Is Kon-Tiki the type of portfolio that can continue to gather assets forever, or will there ever come a day when it reaches a capacity restraint?
The portfolio is not asset gathering driven, it is driven by performance.
This is why the advisory part of the company is important – for customers to know what we’re doing, why, and when. Transparency has been a hallmark since 1993.
Constraints in this industry are about what’s evolving around emerging markets (EM) as well as in EM. At last count there were some 4,000 companies in the sphere. There is no market cap requirement in our approach meaning a wide mandate, so we are less constrained than others. In practical terms, as long as we are moving at a pedestrian pace in terms of asset gathering, then capacity is not a problem.
Speed is more of a problem, but we can soft close. We haven’t had to, although we were close, for example, in 2007, when markets went ballistic in September that year. Still, we found sufficiently good investments at that time.
Is there anything that still surprises you when looking at EM?
Yes, that sophisticated investors still look to similarities more than differences.
We are specialist in being generalist, it is part of the DNA and heritage
Doing market or political guesses is not our game – but where problems occur it can create opportunities. For example, when people fled Russia we went in at 25%-30% cheaper money that month.
Will European investors increase their EM exposure, either because of relative performance compared to developed markets, or because of ongoing shifts in attitudes?
Probably, yes. General public exposure to EM is far too low.
Some might be persuaded to balance portfolios to GDP rather than market cap. However, the fascination with market cap not necessarily good. EM represents about half global GDP and is growing faster, so it should be considered.
At the micro level companies need capital. However, state owned enterprises create views on formal economies versus real economies.
Is it normal to have your 10 largest holdings accounting for some 40% of assets?
It is fairly normal.
The holdings number about 40-ish, with the biggest at around 7.5%, then some 40-50 companies in the tail. If clouds loom then we can look to concentrate the portfolio. For example, in 2007 we cut from over 100 to around 70 holdings, and got a firmer grip on valuation.
Currently we are not very bullish and not very depressed.
What are your expectations for certain sectors over the coming year, and why?
We don’t really do that, we stay company specific.
There are some trends, of course; the noughties were commodities driven. This decade may be consumer, services and technology driven.
Emerging markets don’t have vast infrastructure, such as the shopping malls that exist in developed markets. They may go straight to online shopping.
Globalisation means that the cost of everything apart from services is falling.
And we need to watch innovation, not what happened in Scandinavia thirty years ago. Be careful of using historical priests
How does globalisation of information impact an EM investor such as yourselves?
Information is easier to find, for example because of the internet.
But as competitors are getting more specialised – in investment banks, etc – so has the advantage in taking a generalist approach. You can spot patterns in one country repeating in a global context.
By taking a generalist approach we can pick up things that other houses cannot.
Lots of them have rules in place, but these are not always practiced well. For example, there is a grey area between public and private sectors, which is a challenge in more institutionalised markets. It is important to see, for example, whether the public sector is responding to customer demands.
We learn things here every year. The boundaries between public and private sectors are getting clearer in some countries, which leads to revaluations of companies, say, committed to good governance.
This is why we are still fairly underweight China, where close to 80% of the market cap it state owned. But if they reform over a weekend we are in trouble!
Do you target a particular tracking error?
That kind of speaking came after I left business school.
I didn’t set out to create alphabet soup for consultants. This is part of our DNA hand in hand with transparency. Value today and tomorrow is what counts.
What has adding a team around you taught you about being a lead manager?
It’s been gradual of course, and some in response to regulatory changes. For example, if moving from one region to another, then you need access to legal support.
On the portfolio side we have had a natural appointment and retention rate.
Denmark, Sweden and Norway, are the home market. There the manning level is stable.
In growing markets, for example, the offices in the Netherlands and UK, there is growth.
But there is no big change in what I do day to day.
Do you have any particular frustrations?
I am frustrated with the focus among people on statistical research rather than story behind the stats. That’s a problem of consultants who don’t view the world in the same way.
Regulations are frustrating. This part of the industry has been tarnished with same brush as other parts that did require bailouts, but there has been no evidence of systematic risk posed by asset managers so far.