Claus Vorm, senior portfolio manager and deputy head of multi assets at Nordea Asset Management, underlines the importance of choosing companies with predictable and stable prospects over time, which deliver superior and less volatile performance. Without investing in energy, his 100 per cent equity fund managed to achieve a near break-even result in 2022.
Nordea 1 - Global Stable Equity Fund (ISIN: LU0112467450) is one of Nordea Asset Management’s flagships, with more than €2.9 billion in assets under management and a four-star Morningstar rating based on an annualised return of 8.7 per cent over the past 10 years.
And 2022 did not cause many investors to exit, as the fund was one of the few exchange traded products that could almost break even. The fund has been managed by the same duo, Robert Naess and Claus Vorm, since 2005.
We recently had the opportunity to meet him during his visit to Brussels, where he explained how his management is particularly well adapted to the difficult circumstances of the 2022 financial year.
Sweet spot
“It is often difficult to predict what will happen to fast-growing stocks, especially for relatively young companies that do not have much experience yet or are in the process of launching a new product. Historically, the actual growth of these stocks is often disappointing compared to expectations,” said Vorm. “We will actively try to avoid companies whose valuations contain expectations that will not be met.”
Conversely, he points out that positioning his portfolio on stocks with lower beta than the market is a «sweet spot» for his strategy. “The goal is to win by mitigating the risk of losses, by focusing the strategy on high-quality, robust, companies that can price themselves with defensive and predictable growth.”
After screening the investment universe (of 13,000 stocks) to select those with lower historical volatility, the managers use quantitative tools to select companies with the most stable fundamentals.
“Thus, we have a selection of 350 stocks whose financial prospects are more predictable, with a turnover rate of this sample that is quite low (around 10 per cent per year). And from this group, we select those with the most attractive valuations and sell those that have become too expensive.”
Weekly meeting
While the selection of securities based on fundamental criteria is done on a quantitative basis, the two managers hold a weekly meeting where they review the portfolio and check whether any risks have arisen on certain positions. “Each of us will also submit a list of potential candidates for the portfolio,” he said.
“Sometimes the valuation of a stock is cheap for a good reason, which will not be in the consensus expectations or in our model, so it is important to have that analysis to validate any move in the portfolio. This is a process that we have carried out week after week since the launch of the fund, which allows us to constantly assess the value of our portfolio by directly comparing the value of what is in our portfolio with the value of what is available in our selection of 350 stocks,” said Vorm. “Robert and I have to agree before we buy or sell a position in our portfolio.”
Effective approach
The final portfolio consists of about 100 lines, with a maximum weighting of 3.5 per cent. “We don’t want too much specific risk in one stock, but conversely, we also want to be able to put in each stock with a minimum weight of 0.5 per cent, so we don’t spend too much time on companies that may not have a significant impact on our performance.”
Between 2006 and 2022, Nordea Global Stable Equity achieved an annualised return (gross) of 9.08 per cent, compared with 7.05 per cent for the MSCI World Index, with volatility of 11.3 per cent compared with 13.6 per cent for the MSCI World.
“The 2022 year perfectly reflects the unique characteristics of our strategy, limiting downside moves to outperform over the long term. Winning by not losing.”
This performance is all the more remarkable because the fund is not exposed to oil companies or commodity producers, whose profitability is often highly volatile.
Anticipating revisions
The sector positioning currently favours companies operating in sectors such as healthcare or consumer goods. “But we also have part of our portfolio invested in companies active in more cyclical segments of the economy, as well as a significant weighting in the technology sector.”