SKAGEN Global has made a positive start to a rollercoaster year for stock markets with EUR returns of 6.5%, 1.1% ahead of the MSCI All Country World Index. The global equity fund is also ahead of the same benchmark over one and five years, as well as since inception in 1997.
Most of the fund's 30 holdings reported solid results during the first quarter with DSV driving Global's strong year-to-date performance. The Danish freight company continues to advance despite pressure on freight rates as supply chains normalise and remains the fund's highest conviction position at 6.1% of the portfolio with estimated upside of over 75%.
Dollar General was the biggest laggard of the first quarter as investors favoured less defensive stocks but the long-term investment thesis for the US discount retailer remains intact and the fund managers used its share price weakness as a buying opportunity to increase its position in the portfolio.
Banking on JP Morgan
Investor sentiment during the period was driven largely by concerns over the heath of the global banking system following the failures of Silicon Valley Bank (SVB), Signature Bank and Credit Suisse. SKAGEN Global's Lead Portfolio Manager, Knut Gezelius, believes that the market should not have been so surprised by their demise, however: "A couple of banks tend to go bust every decade. The business model is inherently risky with high leverage and a large asset base supported by a relatively small amount of equity."
This is one reason why SKAGEN Global only owns one bank, JP Morgan, which Gezelius believes will be a long-term beneficiary of the latest banking crisis. Larger US banks have picked up business from smaller regional ones during the turmoil as customers have sought to de-risk or diversify their deposit bases, with one study showing that JP Morgan attracted 50% of SVB's clients (see chart).
Gezelius highlights a number of reasons why JP Morgan is the best bank to own: "It has a diversified franchise with a very broad client base and is the market leader in virtually all segments in which it operates. The bank is also highly profitable and has the financial muscle to outspend its rivals on customer technology and security, at the same time as creating significant shareholder value."
The first quarter saw Mainfreight replace Partners Group in the SKAGEN Global portfolio. The new entrant is a New Zealand-based logistics company which operates globally with 305 branches across 25 countries. In keeping with the fund's investment strategy, Mainfreight is founder-run with a strong management team whose interests are aligned with minority shareholders. Gezelius explains: "Having the founder heavily involved as the chairman of the company and a tenured management team improves the odds of capital being allocated in a prudent and wealth creating manner."
Another freight company, Canadian Pacific, which has been in the portfolio for several years, announced during the quarter that it has received regulatory approval for its merger with Kansas City Southern that was first proposed back in 2021. The combination will create the world's first US-Mexico-Canada railway network over a multi-year project that will potentially create significant shareholder value from revenue and cost synergies.
Despite the recent noise surrounding the financial system and possible risks for the wider economy, Gezeluis remains focused on the portfolio companies and potential new holdings competing for a place in the fund. He believes that inflation may prove to be stickier than many commentators expect but is confident that the current economic environment is favourable for SKAGEN Global: "Our holdings generally have strong pricing power as well as the balance sheet strength to navigate any recession and potentially acquire weaker competitors if M&A opportunities arise." Attractive valuations mean that the fund also has estimated upside over 50% and looks set to continuing rewarding investors on the journey ahead.
All information as at 31/03/2023 unless stated.
 As at 20/04/2023 in EUR net of fees.
 Weighted total portfolio upside based on SKAGEN estimates: 55% over 2–3-year investment horizon.