The pandemic effects
"If I had my way, I would remove January from the calendar altogether and have an extra July instead."
In the final year of his life, the Anglo-Norwegian author Roald Dahl wrote a very personal monthly diary[1]. It reflected mainly his abiding love for and interest in nature. The above quote is one of many such wry observations to be found in the book. This year, I have occasionally wondered what he might have made of 2020.
It has been a remarkable year, and one in which nature has reminded us of our essential fragility. Indeed, there can be few years in which our shared experience has been so profoundly similar. Although the pandemic has been far from egalitarian in its effect; the vulnerabilities of age and social inequality have been cruelly exposed – and continue to be in the reprehensible imbalance in vaccine provision between the developed and the developing world[2].
There have been benefits too. Whether it has been better air quality, urban birdsong, or the significant capital flows to more renewable causes[3], the environment and our treatment of it are now foremost in the minds of policymakers and public alike. Finally. We see real opportunity here, both for society and for better risk-reward in our fund portfolios.
On capital markets
After the correction in the first quarter, the capital markets have recovered strongly, and approval of an effective vaccine has released the pent-up surge in demand to deliver the ongoing 'Everything' rally. All SKAGEN's equity funds have achieved all-time-highs during the year, with the emerging market fund SKAGEN Kon-Tiki passing the totemic NOK 1000 milestone (from a starting price of NOK 100) – and we offer our renewed thanks to the legendary investor Kristoffer Stensrud for helping to make the fund the success it has become.
In recent months, the historic dispersion between growth and value stocks[4] has begun to correct, with value now outperforming growth over the shorter-term.
As CEO of one of the few successful value houses remaining, certainly in the Nordics, I look forward to having the opportunity to prove our skill to clients as value returns to its winning ways. Risks remain, of course, including interest rates, the strength of the dollar, and possible taper tantrums; however, one risk we are spared is the charlatan Trump with his daily tweets – mercifully no longer a market variable that matters to anyone, except to himself.
The Lessons
The New Year brings with it the opportunity to reflect. What have we learned? The truth is a lot of old lessons. The pandemic has mainly served to accelerate and strengthen many existing trends. Working life will continue to be ever more flexible; the best firms will have values, purpose and be hard-wired for sustainability; active engagement of the kind SKAGEN practices will continue to be vital[5]; technology will be both enabler and hindrance; and (some) politicians will continue to mislead their followers – says an expatriate Englishman on the eve of Brexit.
When it comes to investing, we maintain our faith in active value-based investing as the superior long-term investment style. Both necessary for the effective function of the capital markets through price discovery, and best able to allocate client capital in a calculated and responsible way.
The year 2021
What then for 2021? In the Chinese Zodiac it will be the year of the Metal Ox, last seen in 1961. The Ox is associated with dependability, diligence and strength. In 1961 the US stock market rose 27% for the year; but this was then followed by the Flash Crash in 1962[6]. Either way, we enter the year with SKAGEN's portfolios attractively priced, with value on the rise, and with the emerging markets showing greater strength after a better pandemic experience than many feared, especially in Asia.
To help you take stock and assess your investment strategies, the SKAGEN New Year Conference will occur on 12 January 2021. For the first time, this annual event will adopt a digital format on-line. We have assembled a top-rank group of speakers. They will address the economy, the capital markets, sustainability, and more besides[7]. You are warmly invited to attend and can register directly here.
God Jul og Godt Nytt År
As we close in on Christmas, all of us in SKAGEN wish you and yours a very Happy Christmas and a prosperous New Year. Thank you for your continued trust in us.
References
[1] My Year by Roald Dahl published in 1993.
[2] Oxfam Report
[3] https://www.ftadviser.com/investments/2020/11/05/esg-inflows-quadruple-in-2020/
[4] Value investors try to find underpriced stocks that can be picked up at a discount, only to reveal latent value as time goes on. Growth investing is a strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market. Growth investing is higher risk and relies on strong outperformance of a handful of outliers delivering large returns. The gap between value and growth investments is currently at historic levels and value has not been as cheap (on valuation) for over 50 years.
[5] SKAGEN has engaged with 16 portfolio companies on 22 cases so far in 2020. You can read about all our engagement activities and other ESG initiatives in 2020 in our Quarterly ESG Reports and upcoming Annual ESG Report for 2020
[6] Also known as the Kennedy Slide of 1962
[7] Find out more about our New Year Conference here