For Hansen and Vorm, the fact they have known each other so long is a major factor in their success. Vorm points to the disruption caused by investment teams breaking up, asking whether value can ever be maintained.
Safe havens
The fund exited German bunds a few years ago, while keeping US treasuries and UK gilts. “The portfolio has been positioned towards the ‘Anglo-Saxon safe haven’ for the past two years,” says Hansen, who also added Japanese yen exposure to the basket.
“All of those are viewed as safe haven trades; if there is a market sell-off, they should still perform.”
He points to perceived ‘low-risk’ equities as another safe-haven trade. The team seeks stocks with what it regards as lower-than-average volatility, and then hedges out some of the market exposure.
Hansen says: “The relative movement in those equities is still very attractive. They can also be found at an attractive valuation to the market.”
This works if the equity market is going through difficult times. If the market is bullish, on the other hand, the fund managers have positioned themselves in developed market beta and in emerging markets – although not heavily in this asset class until August last year.
“You can find lower risk without reducing the expected return,” says Vorm. “We select emerging market stocks that have more transparency and lower risk – without paying too much for that at the same time.”
In Vorm’s view there is stability in emerging markets at present, but he believes the stocks are very expensive. Utility and telecoms, and the consumer discretionary sectors are attractive, while he also likes some banks.
“There is a tilt to country-specific risk, but we like to keep the portfolio quite diversified,” he says.
Where are the managers seeing protection opportunities?
Vorm explains: “Yield is higher in the UK and US than in Europe, so if it goes wrong, there is still room for bonds to give a bit of protection.”
However, Britain’s choice to exit the EU does cause many uncertainties. While not making forecasts on what the Fed and other central banks will do, Nordea has a strategic view on where interest rates should be.
Hansen says: “Strategically, we think that over 10 years you will probably see interest rates going up, but they will be contained because the demographic decline of the work force will keep growth down.”
