When DNB Asset Management added three equity mutual funds to its offering in December 2019, Knut Hellandsvik, head of equities, could not have foreseen what the first period had in store for the new Low Vol, Nordic Small Cap and Disruptive Opportunities funds.
These strategies have been selected because they offer good long-term market opportunities despite the current market turmoil, Hellandsvik explains:
"We can combine these investment themes with portfolio managers that we believe have the prerequisites to generate alpha over time, which we believe that we have in all three strategies," he says to AMWatch.
The funds have attracted a good inflow relative to expectations so far, although it is still early days.
"We have had very good meetings with potential investors but clearly the coronavirus is putting a stop to everything at the moment. We need to continue to perform in these volatile markets," Hellandsvik, a former regional equities head for JP Morgan, says.
Over the past decade, we have seen growing demand for global thematic and Nordic funds from institutions in France, Spain and Luxembourg, to mention some markets.
Outperform in volatile markets
One of the funds under Hellandsvik's watch is a low volatility equities fund managed by quant investor veteran Ole Jakob Wold, targeting equities that tend to move in a more stable fashion than the overall market.
History shows that low vol portfolios tend to outperform cap weighted benchmarks over a cycle, Hellandsvik explains.
The fund is managed through a systematic approach, favoring equities with historically low price fluctuations and a low correlation between the holdings. The target for the portfolio is to have 20 – 40 percent lower volatility than the MSCI World Index.
"The strategy typically outperforms in drawdown situations like we are experiencing now," the equities chief says.
Hellandsvik tells AMWatch that the portfolio had been up and running for a while before it went live with satisfying results relative to the overall market.
"Our global low vol fund has an alpha in excess of 6 percent so far this year and more than 4 percent was achieved March alone," he explains.
"Clearly, in this extremely volatile time, our low vol portfolio is delivering as we had hoped," he adds, emphasizing that a low volatility strategy should be used to complement traditional alpha-strategies.
"I think that once the dust settles and these types of returns hopefully prevail, investors will look back and think it would be relevant to have a low volatility component in their overall portfolio."
New regime post MiFID II
The two other new funds are the Nordic Small Cap and Disruptive Opportunities. According to the head of equities, Nordic Small Cap is an extremely interesting part of the market for listed equities.
"Looking at it objectively, this market segment is known for generating extremely strong returns in the long run compared to both Nordic large cap and to global equities."
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In the wake of MiFID II, a lot of sell side analysts have cut back on research, especially on companies within the mid and small cap segment.
This lower coverage is what DNB AM wants to benefit from by identifying companies trading below their intrinsic value.
"In-house research has become much more valuable in assessing stock prices since MiFID II. The fund is 5 percent ahead of its benchmark so it has had a very good start under tough conditions," Hellandsvik says, refering to the index VINX Small Cap Index Net.
He adds that it would be difficult to run a similar fund in index format given issues such as liquidity constraints, especially as the fund grows.
To run the strategy, DNB reeled in Hans-Marius Ludvigsen from Pareto Asset Management in 2019. Ludvigsen will be working closely with the rest of the Nordic investment team consisting of Øyvind Fjell and Tarjei Lode, Hellandsvik says.
The fund invests across all Nordic markets and the biggest benchmark weight is Sweden, followed by Denmark, Norway and Finland. From a Norwegian perspective, the fund offers good diversification for investors who have too much domestic exposure, Hellandsvik highlights.
"The Nordic small cap fund has relatively little exposure to typical Norwegian industries, such as oil energy and oil services," he says.
Other bank-owned asset managers in the Nordic region offer similar strategies, such as Nordea, Handelsbanken, SwedbankRobur and SEB. This is something the equity head is aware of.
"None of these are run out of Norway, so from a domestic perspective, we think it makes sense to offer this to domestic and potentially international clients over time," the head of equities says.
"It has been a very popular fund, at least going into the corona crisis"
The Disruptive Opportunities fund is a kind of a multi-thematics fund with the objective of picking out the companies that are going to be the next Google, Facebook or Tesla. In other words: the companies that will dramatically disrupt industries and become long term winners.
The idea is to look for winners in terms of disruption within the five themes of digitalization, urban mobility, machine revolution, demographics and what DNB Asset Management describes as the green deal.
"It has been a very popular fund, at least going into the corona crisis. We believe we have really hit the spot in terms of an investment area that is quite difficult for the average retail investor to invest in," says Hellandsvik.
The fund is managed by Audun Wickstrand Iversen, who rejoined the firm in 2019.
"He has a long and successful track record as both a financial analyst at DNB Markets and as a portfolio manager at DNB Asset Management, before he pursued a career as both CEO and board member of several technology and renewable companies,"Hellandsvik says, adding:
"Needless to say, he brings a lot of relevant experience into the fold here."
Iversen works alongside DNB's tech, healthcare, financials and renewables teams because of the overlapping investment universes.
"So Auden draws on all of the in-house resources in terms of stock selection and building the portfolio."
DNB Asset Management hopes the new fund range will attract interest from outside the home region as well, once the current market storm has settled and once the funds have built up a track record.
"Large institutional clients were some of the first to allocate money to the funds DNB Technology and DNB Nordic Equities," the head of equities says.
"We have increased our client serving capabilities in central Europe because of an increasing number of clients and assets. Over the past decade, we have seen growing demand for of global thematic and Nordic funds from institutions from France, Spain and Luxembourg, to mention some markets."
The Oslo-based investment manager covers the Western countries with 10 business developers and marketing specialists, all of whom speak local languages and have experience from the asset management industry.