Against a backdrop of steadily improving market sentiment, SKAGEN Global has had a strong start to 2024. The fund has gained 7.9% in EUR terms, around 2.0% ahead of the MSCI All Country World Index[1]. It is also beating the global benchmark over three and five years, as well as since inception in 1997 – long-term success that saw SKAGEN Global crowned the best fund in its category over 20 years last month by German finance magazine Das Investment.
Mispricing appreciation
The fund’s impressive start to the year follows a positive final quarter of 2023 when Global delivered similarly strong absolute and relative returns as investor appreciation of the mispricing across its holdings has grown. This awareness has been helped by the companies delivering strong financial results, triggering favourable share price movements.
A good example is long-term holding ASML, which gained 15% after revealing record profits at the end of January on the back of rising global demand for its chip-making equipment, as Knut Gezelius, SKAGEN Global’s Lead Portfolio Manager, explains: “ASML has a quasi-monopolistic market position in producing the cutting-edge lithography machines used to manufacture semiconductors. It announced much higher orders than the market expected and should also benefit from an upswing in the chip cycle driven by rising smartphone and PC sales, as well as strong demand for AI.” The Dutch company is currently a 3.7% position in Global’s portfolio and its top contributor in 2024 with its share price climbing 30% year-to-date.
Another core holding, Brown & Brown, is the second biggest driver behind Global’s good start to the year. The family-controlled US insurance broker similarly announced impressive results in January – boosting its shares by 5% – with strong growth coming from organic expansion and M&A activity.
Gezelius outlines the company’s attraction: “Brown & Brown is a prime example of a company that fits within SKAGEN Global’s guard rails – it is a good capital allocator with a sensible mix f investing in the business and paying down debt while also growing dividends for its 30th consecutive year. We also like our alignment with management. The CEO is the grandson of the founder who has been in the role for 17 years and his father is the Chairman. Together they own nearly a fifth of the company’s shares, which gives us comfort that their decisions will be in the best interests of shareholders.”
Turning a corner
The weakest performer during January was Estee Lauder, continuing the company’s disappointing performance in 2023. February brought better news, however, as the cosmetic giant announced a restructuring program alongside its quarterly results which will see it cut up to 5% of the workforce. The plan was well received by the market with Estee Lauder’s shares climbing 19% in response to the news, as Gezelius explains: “The reorganisation is welcome, but cost cutting is not a long-term path to success and we need to see significantly better execution from the company that would probably benefit from bringing in some external top talent to put the operations back on track and drive a performance culture.”
Global’s other main detractor of 2023, Dollar General, has also had a positive start to 2024. The company is still to announce its financial results, but the share price has gained 3% year-to-date after climbing 7% on Valentine’s Day. DG recently re-hired its former CEO Todd Vasos – news that was well-received by the market – and this year’s solid share price performance is hopefully the start of a longer-term turnaround.
Value and quality
Global’s high conviction portfolio currently has 30 holdings split across eight countries and seven sectors, with the top ten representing almost half (47%) of the fund. Its attractive valuation is reflected in the holdings having weighted upside of 40% over the next two to three years according to the managers’ calculations.
Their discounted price tags do not reflect inferior quality, however, as Gezelius concludes: “Our holdings generally produce higher margins and return on equity than the index and have more conservative balance sheets and debt ratios compared to the market. We target profitable companies that are strongly capitalised and possess unique long-term competitive advantages that are often underappreciated by a myopic market. This combination means they should be well-equipped to deliver returns for clients across a range of economic and market scenarios.”
All information as at 19/02/2023 unless stated.
[1] As at 19/02/2024, net of fees in EUR.