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In many ways, stock-picking is the alpha and omega of SKAGEN Funds, says Knut Gezelius.

There is little doubt that it has been a bumpy start to the year in the global equity markets. Knut Gezelius explains that under these conditions it is more important than ever to continue focusing on the companies, and not be overwhelmed by sensationalist news headlines.

What does stock picking mean and where are the advantages of this strategy?

In many ways, stock-picking is the alpha and omega of SKAGEN Funds. We focus on identifying unpopular, under-researched and undervalued companies that can deliver under a wide variety of macroeconomic scenarios which by nature tend to be less predictable and often shrouded in sensational headlines affecting human psychology. Stock picking also allows us to own only what is worth owning, i.e. undervalued companies with an attractive return profile. This is different from an index fund strategy where investors also end up owning companies that are fairly valued and even overvalued. Why own an overvalued company instead of an undervalued company?

Do you think that the importance of stock picking is still growing?

Absolutely. While this year's fairly indiscriminate sell-off has been painful to many investors, it may actually prove to be a blessing in disguise for stock pickers. Correlations seem to be falling and we're finally seeing some real value discrepancies beginning to emerge in the stock market. The environment is one where fundamentally-oriented stock pickers should flourish. This is their time to shine.

Is there still power coming from the Central Banks?

Most definitely. We don't subscribe to the view that Central Banks are running out of ammunition and are on the verge of capitulating. The reality is that their toolbox is much more comprehensive than the market currently signals. Having said that, we think investors' ability to predict when and how Central Banks will act is limited and therefore we choose to stay focused on finding companies that can prosper under a broad set of macro conditions rather than betting on names requiring monetary easing to support further gains.

Do you expect a better development of the capital markets in 2016 than in 2015?

When doom-and-gloom is the flavour of the day, contrarian investors should instinctively ask themselves if the negativity has not gone a bit too far. We have noticed that institutional investors' cash piles on the sidelines are now at the highest level since 2001 and that retail investor bearish sentiment gauges are at levels not seen since the financial crisis. These are buy-indicators for someone like SKAGEN with a counter-cyclical approach. Hence, we wouldn't be surprised if 2016 turns out to be a better year than 2015 and the rocky start may well be forgotten after the summer holiday.

 

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Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager's skill, the fund's risk profile and management fees. The return may become negative as a result of negative price developments.