Investment Strategy and Characteristics - SKAGEN Focus
SKAGEN Focus is a long-only equity fund that seeks to generate
long-term capital growth by investing in a highly concentrated
portfolio of companies from across the globe. The fund is managed
by Jonas Edholm and David Harris.
SKAGEN Focus is a highly active global equity fund with a portfolio biased towards smaller companies. It has the following characteristics:
The portfolio contains a concentrated portfolio of 30-35 core positions with the top 10 holdings typically representing 45-50 percent of assets. This high conviction investment approach results in an extremely high active share and substantial deviations from the underlying market over time.
Small / mid cap focused
Although the portfolio managers are generally agnostic in terms of market capitalisation and companies of all sizes will typically be represented in the fund, small and mid cap companies are expected to form a significant portfolio weighting.
The portfolio managers believe that all companies are potentially attractive at the right valuation. This price-driven investment approach means that they don’t discriminate against any investment opportunity on the grounds of sector, geography or perceived market quality.
‘Buy vs. Build’ valuation framework
The fund applies a strict bottom-up and common sense equity valuation framework. Each stock is valued using a balance sheet-focused, private equity-type approach with an economic return estimate based on steady state or normalised earnings power.
A minimum 50 percent share price upside is targeted for every investment. The portfolio managers avoid stocks trading at or above their estimate of fair value and any revision to their original investment thesis requires substantial and fundamental change in the company’s prospects.
Clear and viable catalysts are identified as part of each company’s investment case. The portfolio managers’ investment horizon is typically 2-3 years but companies may be held for longer, consistent with SKAGEN’s long-term fundamental investment approach.
SKAGEN Focus is actively managed without being constrained by an underlying index. Investing away from the benchmark allows the portfolio managers maximum flexibility to find value and select their best ideas to optimise the fund’s long-term risk-adjusted returns.
In addition to the above criteria, the portfolio managers use an extensive due diligence check-list to analyse investment cases which includes assessing a company’s business model, financial statements, competitive landscape, ownership structure and ESG factors. They are comfortable investing in complex or cyclical companies, or those in restructuring or turnaround situations.