Old school New England 92 - Scanorama

Contrarian with a purpose
Doing it differently for the right reasons
“Just because the stocks in Hong Kong
fell by 5% this morning, doesn’t mean
that the companies are 5% worse,” says
Åge Westbø, SKAGEN Funds deputy
managing director and co-founder.
The observation goes to the heart of
Westbø’s contrarian outlook.
He is a contrarian character. Possessed
of an agile mind, which bounces from
subject to subject, he first rages at rival
fund managers who buy stocks just to
prove they are doing something, then
takes a philosophical detour, as he
discusses Marx and Kant. Each time, he
challenges orthodox interpretations,
and comes up with his own considered
alternative.
“If you say black, he will say white,”
says one SKAGEN insider.
As one of the four founders and five
major shareholders of the company,
Westbø can be as contrarian as he likes.
(“My greatest fear is that we become
part of the establishment,” he says).
But you quickly realise that this type of
outlook runs throughout the company.
“It certainly applies to SKAGEN,” says
Harald Espedal, chief executive, investment
director and another of the five
major owners. “The business ideal of
providing great returns is founded in a
contrarian approach.”
“If you think like most other participants
in the market then you won’t be able
to achieve a return which is in any way
better than the market. So if you want to
make money for your clients, then you
need to have a view which is different
from other investors.”
Investment decisions are made from
the bottom up. The firm does not invest
in markets or indices. It invests in
companies from all corners of the globe.
In addition to making their own investment
decisions, portfolio managers do
all of their own analysis – a relative rarity
– and they have to pitch and justify
their ideas to all of their investment
colleagues. And, because the owners of
the company are the same sage heads
who believe in long-term investment,
there is no incentive for disruptive stock
churn or panic selling in a downturn.
Says Espedal, “being independent
means that we don’t have to meet quarterly
performance targets, so we can
take the long-term view and do the right
things for our clients.” Funds tend on
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average to hold stocks for just six
months. But once picked, SKAGEN
stocks remain in the funds for an
average of between three and five
years, regardless of what the rest
of the market is doing.
Indeed, true to contrarian form, SKAGEN
managers regard a falling market as
the ideal time to pick up unloved gems.
“In this industry, people seem to sell
when the stocks get cheap, and buy
when they are expensive again. They
don’t want to do it but that is the kind of
behaviour you exhibit when you don’t
understand risk properly,” says Westbø.
Kristian Falnes, SKAGEN Global portfolio
manager, and another of the five
major owners of the company, has his
own interpretation.
“The efficient market is a myth,” he
says. “The market is irrational. So when
everyone says a stock is bad, that is the
first place we look.” (See case study box
on previous page). Sometimes, stocks
are just bad and undervalued for a good
reason. Bad management or poor corporate
governance can destroy value,
no matter how attractive some of the
numbers appear. But often the unloved
apples are the ones which turn out to
be the
“The market is irrational. So when everyone
says a stock is bad, that is the first place we look.”
sweetest.
“Each
of our
equity
funds comprises about 100 companies.
But where we do invest, it needs to
be from a different viewpoint,” says
Espedal. “Since we tend to invest in
companies which are unloved we need
to have a more optimistic view of the
companies than the rest of the market
and a good idea about the triggers
which will release the value.”
Out in sleepy Stavanger, on the West
Coast of Norway, SKAGEN fund managers
are thousands of miles from the rumours
and bar-talk of London and New
York. The isolation helps them maintain
their contrarian outlook and prevents
them from getting swept up in investment
groupthink. It also contributes to
what is a very Nordic success story.