SKAGEN Kon-Tiki: A Global Emerging Markets Fund

Investment Strategy

SKAGEN Kon-Tiki invests on the basis that the developing world will be the main driver of global economic growth for years to come. The portfolio managers view emerging markets as an increasingly dynamic and highly diversified investment universe, albeit with inherent inefficiencies. These characteristics are supportive for SKAGEN's active approach as – even more than for developed markets – careful stock picking is a key determinant of investment success.

SKAGEN Kon-Tiki’s approach is benchmark agnostic which gives the portfolio managers maximum flexibility to invest with conviction in the best emerging market value opportunities and optimise the fund’s risk-adjusted returns. The fund benefits from a broad global mandate and investment decisions are based on company fundamentals, rather than targeting sector or geographic exposure.

A key differentiator versus peers is SKAGEN Kon-Tiki's ability to invest in developed market-listed stocks, where these companies have exposure to emerging markets. The portfolio managers believe that where a company operates or generates revenue is more important than its country of listing and this flexibility can provide valuation, corporate governance, liquidity and other arbitrage opportunities.

At least half the fund's assets must be invested in emerging market-listed companies and this proportion has historically been around 70-80 percent, but it may fluctuate significantly over time depending on where the portfolio managers identify the best value opportunities. They are supported by two dedicated analysts and spend considerable time understanding the fundamental drivers of a company’s current and future earnings.

The fund's value focus is reflected in a portfolio which typically trades at a material discount to the index on traditional valuation metrics as well as to intrinsic value. In addition to valuation offering a margin of safety, downside protection is provided by a portfolio diversified by geography, sector and economic sensitivity. While the portfolio is constructed bottom-up, holdings can be grouped within several complementary themes linked to attractive structural emerging market trends, such as growing consumption, access to financial services, technology and sustainability.

SKAGEN Kon-Tiki’s portfolio has historically offered significant exposure to small and mid-cap companies as well as more traditional high-conviction large cap ideas. Portfolio companies typically have solid business models but their potential to create long-term value isn't reflected in the share price and clear catalysts have been identified for revaluation. The portfolio managers also target companies with management teams who have a proactive attitude towards shareholder returns rather than just accumulating book value.

Portfolio Characteristics

The high conviction portfolio typically consists of 40-70 companies with the top 35 representing 80-95 percent of the fund. Each holding is targeted to be a minimum one percent of assets with a high level of liquidity. The portfolio managers have a long-term perspective to value creation and the fund’s average holding period has historically been over three years. They focus on absolute return opportunities and expect new positions to have at least 40% percent upside over a two-year investment horizon.

Holdings face continuous competition for a place in the fund from a 'hot pot' of potential investments. Alongside a healthy library of previous holdings, which are habitually recycled into the portfolio when valuations are sufficiently attractive, this list of new ideas is regularly updated and forms the basis for the portfolio's turnover.

Read the Investment strategy PDF for SKAGEN Kon-Tiki