Like a good wine or a favorite pair of jeans, SKAGEN Vekst gets better with age. Our Nordic-global equity fund, which in December will enter its fourth decade, continues to deliver strong absolute returns for clients. Those invested at the end of August had received annualised NOK gains of 22.9%, 20.4% and 12.6% over one, three and five years, respectively. Relative performance has also been positive with the fund beating its benchmark index over each of the above periods, despite value stocks generally underperforming growth ones for much of this time.
SKAGEN Vekst has performed even more impressively versus other Nordic funds, particularly given their growth bias. Its cumulative three-year return is more than double the average Nordic fund with lower risk, as measured by standard deviation (see figure 1). This has been achieved despite the fund having direct exposure to the Russia-Ukraine war, China-Taiwan tensions and a US banking crisis that Nordic-focused funds avoided, illustrating strong risk management within the portfolio.
Since Søren Milo Christensen took over as lead portfolio manager in 2018, the fund's strong returns have been driven largely by good stock selection. Over the past three years – a period when the fund has beaten its benchmark by 6.7% on an annualised basis – stock picking has led to outperformance in all regions and 12 of 13 countries. The picture is similarly positive across sectors where SKAGEN Vekst has beaten the index in 8 out of 10 sectors. Importantly for overall returns, underperformance in the countries and sectors where the fund has lagged has been relatively small, whereas outperformance in those where it has triumphed has often been by a wide margin.
A good example is China where stock selection has had a large positive effect on portfolio returns. Year-to-date, SKAGEN Vekst's Chinese holdings (Ping An, China Mobile, Cnooc and Alibaba) are up by a combined 23%, outperforming the fund overall (+16%) and the Chinese benchmark (+8%). A combination of improving corporate governance relating to capital allocation and low valuation has been a key driver of this strong performance – with China facing structural challenges, notably in the real estate sector, and geopolitical risks, this highlights the importance of picking the right companies at the right prices.
More broadly, the fund's positive year-to-date returns are attributable to strong contributions across the portfolio – which has avoided any major losses – and standout gains from two holdings: Broadcom and Novo Nordisk.
With impressive growth in its semiconductor and software businesses, Broadcom has also been boosted by the recent frenzy around artificial intelligent (AI). The US technology company is the market leader in cutting-edge custom chips used by clients like Google, Apple, Facebook and Microsoft.
Novo Nordisk has been lifted by positive trial results showing that its obesity drug Wegovy can also reduce the risk of cardiovascular disease. This important milestone for SKAGEN Vekst's largest holding saw its shares jump around 20% on the news.
The SKAGEN Vekst portfolio has recently undergone a number of changes, including profit-taking from this year's AI frenzy by selling down Broadcom and Alphabet (Google). Meanwhile, the fund's exposure to Korea engagement cases has increased via KB Financial and SK Telecom, where corporate governance continues to improve.
The upshot is a defensively tilted portfolio which has overweight sector positions in consumer staples, materials and energy, and is underweight information technology versus the index. Vekst also continues to have a clear value bias relative to both its Nordic peers and the benchmark (see figure 2), against which it trades at P/B and P/E discounts of 50% and 33%, respectively.
This price-driven approach offers downside protection and should help the fund to continue delivering superior returns as Vekst approaches its 30th anniversary. The unique characteristics that combine good stock picking with careful portfolio positioning mean that clients can look forward to many more positive years ahead.
NB: All figures in NOK as at 31/07/2023 unless stated. Performance net of fees and annulalised for periods over 12 months.
 As at 31/08/2023 for SKAGEN Vekst C, net of fees.