New equity fund launched to benefit from activist trends globally
SKAGEN Insight is a new type of equity fund which seeks to generate outperformance by investing in companies subject to activist campaigns.
The new fund will combine SKAGEN's longstanding value-based, bottom-up approach to stock selection with a "shadow activism" methodology. This entails identifying those companies subject to promising activist campaigns that will unlock value through the structural, strategic, operational, financial or governance improvement of those businesses.
The seeds of the idea to start a so-called shadow activist fund were sown as far back as 2014 when SKAGEN Insight's portfolio manager Tomas Johansson left his job at one of the world's largest activist funds to join SKAGEN.
"I saw close up how activists' ideas could create value to the benefit of all shareholders. There were disadvantages, however. The inspiration behind SKAGEN Insight is to take part in the value creation in a smarter way," explains Tomas.
Improvement of companies
Traditional activists can be described as active owners who invest in companies with untapped potential to make improvements. These improvements usually lead to increasing the value of the company, to the benefit of all shareholders.
The new equity fund SKAGEN Insight selects the most promising activist campaigns globally and "shadows" them. SKAGEN Insight invests in the 30-40 companies subject to the most attractive activist campaigns globally, thereby ensuring a more diversified portfolio than traditional activist funds and allowing for the delivery of greater returns at lower risk.
Opens up the market segment
The new fund, which will be available to investors in the UK, Luxembourg, the Netherlands, Norway, Sweden and Denmark, will allow investors to benefit from exposure to the interventions of activist shareholders, which have increased significantly in recent years but are often too expensive to access directly via traditional activist funds.
The most interesting cases
An important aspect of the portfolio manager's job is evaluating activist campaigns and their ability to implement their initiatives. Is the activist the right player to be able to release value for all shareholders? Is the company receptive and in a position to fulfil its full potential? It might, for instance, be a matter of making changes to a company's structure, strategy, business, cost base or management. Once in a while it is possible to implement several of these improvements at the same time.
Tomas Johansson has the advantage of working closely with a team of 12 portfolio managers from SKAGEN's other equity funds, all of whom have long experience investing in global equities. Nonetheless, he maintains that he has a slightly easier job than the other global portfolio managers.
"When I start my analysis, I start with a selection of already interesting investment cases. Obviously competent investors, who have staked their reputation on the investment, are already invested. Since activists are dependent on getting support from other owners, they often share their analyses. In other words, I am not starting from scratch," he says.
Companies with potential
SKAGEN Insight's portfolio consist of around 30-40 holdings. Among the largest investments in the portfolio at launch are the US sports bar chain Buffalo Wild Wings and the Japanese company Teikoku Sen-I, which specialises in firefighting and disaster prevention equipment. Nordic companies Eltel and Ericsson are also part of the portfolio.
"Ericsson is going through the difficult process of adapting to a new corporate climate, with low demand for 4G base stations. When demand turns and investments in 5G gather headway, they will be in good shape," comments Tomas about the company's potential.
Traditional activist fund
A fund that invests in companies and makes use of their voting rights to push for improvements and changes in how the companies are run.
Shadow activist fund
A fund that invests alongside traditional activist funds in the same companies. A novel concept initiated with SKAGEN Insight.
SKAGEN Insight at a glance
- A new fund concept that actively targets the most attractive activist campaigns globally.
- Active ownership is a means to create shareholder value through the improvement of companies.
- Applies SKAGEN's active and value-based investment philosophy and has a global mandate.
- Makes this form of attractive investing accessible to a wider audience at a much lower cost.
- Lower risk than traditional activist funds as less concentrated and with a more diversified portfolio from a geographic, industry and activist principal perspective.
- Recommended investment horizon: 5 years.
For Luxembourg investors: find out more about SKAGEN Insight.