HALF YEAR REPORT
DISRUPTIVE INNOVATION
IF THE PRICE IS RIGHT
JULY 2014 | www.skagenfunds.com LEADER Sit tight and
DISRUPTIVE enjoy the ride INNOVATION
At the time of writing, under the Norwegian midsummer’s night sun, our equity funds are setting unit price records, the bond funds are delivering very strong results and most of the global economic indicators are pointing upwards. This is a moment one should allow oneself to enjoy, since just three months ago we were asking clients to sit tight.
It is also important to remember that we have do not necessarily create value for sharehold- IF THE PRICE not done anything differently from before. But ers. The market constantly seems to forget this, IS RIGHT it is during times like these that we are better with the outcome that hot listed stocks are often rewarded for our investment philosophy. The overpriced. Moreover, it is also interesting to see We like to invest in creative, global equity markets continued their upward that a lot of innovation is happening within well good quality companies, but trajectory in the second quarter delivering a return established businesses. not if we have to pay too much of 5.7 percent in euro terms. Unlike the previ- for them. We are currently living ous quarters, and contrary to what newspaper in exciting times of rapid tech- headlines had predicted at the start of the year, Picking corporate bonds from the global orchard nological development and no emerging markets have performed equally well The new bond fund SKAGEN Credit is our latest one yet knows where this will so far this year (+6.8% in euro) having made up innovative contribution, where we offer our cli- lead us. But as was the case a lot of the ground lost in the second quarter. ents the opportunity to invest in global corpo- during the Internet bubble at The second quarter was also eventful on the rate bonds. Since capital requirements for the the beginning of the 2000s, political front. The most significant occurrence world’s banks have increased over the last couple we must keep a cool head and was the election victory of Narendra Modi and of years, we have seen that the bond market has know that we are investing in his BJP party in India. The Indian stock market is changed. It has become more common for compa- real and affordable innovation. up 25 percent so far this year, so expectations nies to prefer to lend money directly in the capital of reform and economic development have left markets instead of going through banks, which their mark on the market. Now it is up to Modi and has led to more investment opportunities. To his government to deliver. Further to the east in benefit from these opportunities, SKAGEN Credit Thailand, the military took power, but the stock offers easy access to a well-diversified portfolio market continued its rise. This was the twelfth across sectors and regions. The fund follows the coup d’état since the establishment of a consti- same investment philosophy as our other funds tutional monarchy in 1932, so in a sense, it was and selects the best bonds irrespective of credit business as usual. Read more about the general quality, sector or country. Since companies are markets and their impact on our portfolios from at the heart of the investments, the managers page 16 onwards. are also able to take advantage of the combined experience and analysis of SKAGEN’s equity fund Real and affordable innovation managers. Read more about the fund on pages The theme of this market report is “disruptive 12 and 13. innovation - if the price is right.” This chimes well with our value-based investment philosophy. We Wishing you a great summer! typically like to invest in creative, good quality companies, but not if we have to pay too much for them. We are currently living in exciting times of rapid technological development and no one yet knows where this will lead us. But as was the case during the Internet bubble at the beginning of the 2000s, we must keep a cool head and know that we are investing in real and affordable innovation, and not in just more ‘emperor’s new clothes’. We – Casper Meussen have seen that companies that change the world Head of International
2 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 CONTENT
LEADER DISRUPTIVE PORTFOLIO Sit tight and enjoy the ride > 2 INNOVATION MANAGERS´ Casper Meussen Some solar stocks will shine > 5 REPORT Comment by Søren M. Christensen Technological quantum leap INTRODUCTION SKAGEN NEWS creates hopes and dreams > 6 SKAGEN funds’ performance > 4 Trends in the digital era An eventful quarter > 16 Fund returns 2Q 2014 Creating value through destruction > 8 He who works hardest wins > 11 Investing in breakthrough companies EQUITY FUNDS Interview with Johan Swahn – only if the price is right SKAGEN Vekst > 20 A record quarter Who would you lend your money to? > 12 More than communication > 10 New corporate bond fund, Design and technology in SKAGEN Global > 23 SKAGEN Credit emerging markets A good quarter
Notices > 14 SKAGEN Kon-Tiki > 26 New year’s conference 2015 Best in almost 4 years and people moves FINANCIAL STATEMENT SKAGEN m² > 29 Half year accounts > 43 Adjustment paid off
FIXED INCOME FUNDS
Fixed income report > 32 SKAGEN seeks to the best of its ability to ensure that The report should not be perceived as an offer or Stronger measures needed all information given in this report is correct, how- recommendation to buy or sell financial instru- ever, makes reservations regarding possible errors ments. SKAGEN does not assume responsibility SKAGEN Tellus > 33 and omissions. Statements in the report reflect the for direct or indirect loss or expenses incurred Good performance, good outlook portfolio managers’ viewpoint at a given time, and through use or understanding of the report. SKA- this viewpoint may be changed without notice. GEN recommends that anyone wishing to invest in our funds contacts a qualified customer adviser by telephone on +47 51 80 38 58 or by email at [email protected].
6 20
Serial founder Elon Musk is one of the foremost exponents The second quarter was an eventful one on the political front. The election victory of Indian prime minister Narendra of disruptive innovation. Pictured here in front of a model of Modi brings hope of less bureaucracy and economic growth. The Indian market is up 25 percent year to date. his Space Taxi.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 3 SKAGEN FUNDS SKAGEN FONDER Returns
The following tables show the returns for SKAGEN’s funds versus their respective benchmarks in euro. The figures are updated as of 30.06.2014
Equity Fund Fixed Income Fund
SKAGEN GLOBAL SKAGEN VEKST
Manager: Kristian Falnes Start: 7 August 1997 Managers: Ole Søeberg och Geir Tjetland Start: 1 December 1993
Return past 12 months Average annual return since start Return past 12 months Average annual return since start
30 30 30 30
19.7% 18.9% 20 16.9% 20 20 20 16.4% 15.5% 14.9% 9.9% 10 10 10 10 3.2%
0 0 0 0
-10 -10 -10 -10
* The benchmark index prior to 1/1/2010 was the MSCI World Index * The benchmark index prior to 1/1/2010 was OSEBX and prior to 1/1/2014 it was OSEBX / MSCI AC (50/50).
SKAGEN KON-TIKI SKAGEN m²
Manager: Kristoffer Stensrud Start: 5 April 2002 Managers: Michael Gobitscheck and Harald Haukås Start: 31 October 2012
Return past 12 months Average annual return since start Return past 12 months Average annual return since start
30 30 30 30
20 20 20 20 15.9% 15.9%
8.9% 10 10 8.0% 10 10 7.5% 5.7% 2.8% 0.1% 0 0 0 0
-10 -10 -10 -10
SKAGEN TELLUS Unless otherwise stated, all perfor- The half year financial statement was mance data in this report relates to originally prepared in Norwegian. The Manager: Torgeir Høien Start: 29 September 2006 class A units and is net of fees. translated version is published with reservations regarding possible errors Return past 12 months Average annual return since start Unless otherwise stated all figures and omissions as well as erroneous 10 10 quoted in this report are in euro, except translation. In case of conflict between for the half year financial statement, the Norwegian accounts and the En- 5.81% which is in Norwegian kroner. glish translation, the former shall pre- 5 3.39% 5 3.91% vail. The Norwegian version of the half 1.57% SKAGEN Funds only has authorisation year financial statement is available at 0 0 to market its money market funds SKA- www.skagenfondene.no
* The benchmark index prior to 1/1/2013 was Barclay’s Capital Global Treasury Index 3-5 years.
4 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 COMMENT Some solar stocks will shine
On the whole, solar energy stocks have performed well over the past 12 months, and there are good indications that this development will continue. – Søren Milo Christensen Portfolio Manager
The costs associated with producing solar energy have fallen Sun on sale sharply and will continue to fall. At the same time, the number The enthusiasm for solar shares abated faster than share prices of markets where this type of energy is competitive is growing fell. The consensus in the market was that the industry would rapidly – without subsidies. Solar energy is still an extremely forever be dependent on subsidies and would never create value small part of the overall energy market, however, which presents for shareholders. This pessimism pushed the valuation of solar opportunities for significant growth. stocks right down, while at the same time creating opportunities As value investors we are undeniably tempted when we see for those of us who maintained a value-based philosophy. Solar that opportunities for substantial growth among manufacturers stocks started selling at sales prices in 2013. with a sustainable cost advantage do not appear to be fully priced The interesting thing about solar stocks is, of course, that after in to the current share price. That is when these stocks can be several years of extremely strong growth, solar energy continues perceived as being undervalued. to remain a negligible proportion of global energy consumption. Production costs for solar energy continue to fall, driven by tech- Value calculator nological developments – this has been precisely the case for Strong growth is rarely synonymous with high equity returns. other products such as IT. At the same time, efficiency continues For investors equipped with a value-based calculator it is seldom to rise. Oil, which is often used as a frame of reference for energy attractive to invest in shares with extremely high growth reinforced sources, is its polar opposite as it becomes increasingly more by a good story. The reason is not that there is anything wrong with expensive to extract new resources. high growth per se, just that the market generally has a tendency This dynamic is very interesting given that solar energy is to over-price this type of stock. already competitive in a number of regions –entirely without the The most classic mistake the market makes is to forget what it need for subsidies. costs companies to produce growth. Companies with a low return on investment and high growth will – sooner or later – be forced Starting to see the light to obtain new capital to finance future growth. This in turn dilutes Although many stocks in the sector have already increased in existing shareholders. value, there is still a great deal of scepticism priced in. There are still interesting opportunities to be found as long as one steers Cloudy skies clear of the parts of the value chain where new capacity takes time High growth was also the norm among solar-related companies and where it is possible to have a cost advantage. It is worthwhile prior to 2011. Profitability was unnaturally high, driven by sub- remembering that the pricing of individual stocks varies greatly sidies which lifted demand quicker than new production could and many companies have high risk as a result of high debt levels. appear. As expected the high profitability eventually led to new One example of a company where the opposite is true is OCI, capacity. The result was a drop in the price of polysilicon, for a Korean polysilicon manufacturer. The company appears to be example, which is a central component in solar panels. in the right part of the value chain, has the right cost structure The same thing happened to earnings, share prices and thereby and manageable debt. Not bad when seen alongside its attrac- the valuation of a large number of polysilicon manufacturers. One tive valuation. such example is the Korean company, OCI.
POLYSILICON PRICE ($/KG) SHARE PRICE VERSUS BOOK EQUITY FOR OCI
80 80
60 60
40 40
20 20
0 0 Jan. 11 Jan. 12 Jan. 13 Jan. 14 Apr. 14 Jan. 11 Jan. 12 Jan. 13 Jan. 14 Apr. 14
Source: Bloomberg Source: Bloomberg
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 5 DISRUPTIVE INNOVATION Technological quantum leap creates hopes and dreams
Technological breakthroughs and successful digital products give rise to the conviction that companies will need to operate in an entirely new way in future. – Christian Jessen Communication Manager
Experts in the digital economy properties. By way of comparison, it has taken Hilton 93 years to are again emphasising that the accrue similar capacity in the hotel market. growth of the internet is lead- Some companies look upon marketing as something only weak ing to radically different busi- companies do. WhatsApp, for example, profiles itself as never nesses which are closer to the having spent a penny on marketing. According to David Rowan, customer, faster to market and WhatsApp maintains that if you have the right product at the right without any suffocating ties to time, it can be sold on the web without the need for crutches and the past. support. SKAGEN is following the The cult of the entrepreneur as the genius innovator who developments closely. Still, our exceeds all set boundaries has once again taken off. According perception is slightly different to Rowan many of the tech millionaires he knows have a number from that of the most fervent of things in common. David Rowan interviewed about advocates, which you can read “Dyslexia and a certain degree of Asperger’s are often involved. trends in the digital era. more about on the next page. They don’t see rules, but rather opportunities,” says Rowan. David Rowan is editor of the Possibly infected by the enthusiastic mood in his domain, most influential British technology magazine, Wired. During a he emphasises that Google also pays for exceptionally talented recent visit to SKAGEN, he spoke about the successes, failures engineers and designers when they buy technology companies. and what it is that drives successful global entrepreneurs both Sceptical equity analysts from the ‘old’ world can already start directly and indirectly. to calculate the exorbitant price tag on each and every engineer “The rug is being pulled out from under the feet of the compa- in companies like Nest Lab and Deepmind. nies that you are invested in,” states Rowan. “There is exponential The ultimate example is serial founder, Elon Musk, who always growth in technology. Reality and truths are changing much more starts by setting himself high and extremely visionary goals. He quickly than previously.” earned a fortune on the payment service PayPal and is currently A company like Airbnb, which rents out private homes to trav- revolutionising the world with the electric car, Tesla, and cutting ellers, claims that in just four years it has secured 650,000 rental edge battery technology.
According to Christensen it is a more precise term than Dis- disruptive notoriously difficult for estab- ruptive Technology. investing lished companies to reinvent It is only once a new tech- themselves radically. They are nology has been converted The terms Disruptive Tech- created to develop and opti- into one or more commercial nology, Disruptive Innovation mize the market in which they innovations that the actual shift and Disruptive Investing are are already present, focusing on occurs. Many of the most highly used interchangeably and have the coming year’s results. regarded companies have not gained a footing in business “Institutions try to preserve invented the technology, but and technology literature. The a problem where they are the they use the new technology term disruptive technology was solution,” says David Rowan. for commercial breakthroughs. coined in 1995 by Professor The term Disruptive Invest- The invention of the car occurred Clayton M. Christensen from ing is used about investments gradually before the year 1900. the Harvard Business School. that are made to be part of the But it wasn’t until Henry Ford Disruptive in this context latest trends and to be ahead mass produced the lower priced stands for something new, of the game when entirely new Ford Model T in 1908 that the which suddenly and wholly puts industries emerge. Disruptive market for horse drawn vehicles a stop to something else. Innovation is considered to be was disrupted.
6 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Photo: Courtesy of Airbnb The rise of the room-letting website Airbnb is testament to the growing popularity of ‘collaborative consumption’ – sharing, swapping and renting your possessions. They got headquarters to match.
In January Nest Labs was sold The background for the numer- It actually feels like 1999 the exorbitant to Google for USD 3.2 billion ous transactions is the faith when you read newspapers price of company dollars. The company man- and knowledge that an abun- and follow these markets in acquisitions ufactures self-learning ther- dance of innovations and tech- 2014. However, as always, mostats and was founded by nological quantum leaps, par- something real is happening There has been news almost two former Apple engineers, ticularly within mobile internet, behind the headlines. This was daily this year regarding yet one of whom, Tony Fadell, is is creating entirely new mar- the case in 1999 too; Amazon, another mobile technology known as one of the fathers of kets and gives consumers pos- for example, has proved to be company bought for a mil- the iPod. The company is cur- sibilities that were previously extremely adept at surviving. lion-dollar, billion-dollar or rently in the process of find- unthinkable. Many spectators are point- even multi-billion dollar sum. ing an intelligent way to link Does all this sound famil- ing out that the unthought-of Below are three of the larg- homes and the digital world. iar? If we look back 15 years possibilities that the internet est transactions that have During its spending spree to 1999, for example, recently created are finally becoming a occurred this year, as selected in January, Google also bought established internet compa- reality, which the most vision- by David Rowan from Wired British company Deepmind, nies with an operating loss ary investors were already Magazine: which does not yet have any were trading at astronomical seeing back in 1999. All this In February, Facebook products. The company’s sums. Established companies is occurring via mobile broad- bought WhatsApp for USD 19 founder and figurehead is were merging left, right and band, tablets and GPS-based billion. The company’s turn- genius Demis Hassabis who is centre in order to survive in the services. over is just a fraction of this, counted among the world’s 50 new business world and the but it has 450 million users, best researchers within arti- ingenious entrepreneurs were particularly in emerging mar- ficial intelligence and neuro hailed in glossy magazines. kets. The app provides mobile research. Google allegedly Subsequently the bubble in the messages and is the most pop- paid USD 400 million for the stock markets burst entirely ular service in the world. company. from April 2000 onwards.
NOKIA 2007 TOUCHSCREEN BLOCKBUSTER 1999 STREAMING KODAK 1975 DIGITAL IMAGE
An engineer employed by Kodak In 1999, the US provider of Nokia had the technology to make 3 dead companies invented the world’s first digi- home movie rental services touchscreen phones, but accord- tal camera in 1975. This did not Blockbuster was contacted by ing to Rowan they were more con- History is full of companies that suit the company which made the development department cerned about producing robust have been wiped out because its living from manufacturing of another company which sug- phones that could tolerate being they did not exploit technolog- film. Last year Kodak went out gested that Blockbuster start to dropped from a height of two ical opportunities sufficiently of business after a long and stream films for rent. This would meters. The rest is history. to create commercially viable painful struggle. prove costly initially, so Block- goods. David Rowan highlights buster declined. Several years three well-known examples: later, Netflix took over the mar- ket and later a number of other suppliers.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 7 NEW INNOVATIONS CRISIS AS USUAL Something new. Often with worse performance than existing prod- ucts but with new functions. Exam- ple: Tablet computers are replacing personal computers.
DEVELOPING INNOVATIONS
Develop existing innovations, such as curved flat-screen televisions, which build upon existing flat- screen televisions.
EFFICIENCY INNOVATIONS
Challenge established players by organising more efficiently by, for example, creating central logistics, new low-cost alternatives, etc.
Creating value through destruction DISRUPTIVE Companies that change the world do not necessarily create value for sharehold- INNOVATION ers. The market constantly forgets this and the outcome is that hot listed compa- nies are often overpriced. However, sometimes breakthrough companies do make it through the sluices into SKAGEN’s equity fund portfolios – if the price is right. – Jonas A. Erikson Communication Manager
From an investor’s perspective, it is often prob- Yes to change and growth – if the price is right IF THE PRICE IS RIGHT lematic that listed companies that turn the You do not find many disruptive companies in industry upside-down become so popular that SKAGEN’s equity funds. Most often, the risk is Corporate history is paved with their valuation can no longer be recouped. For too high and potential returns too low. SKAGEN disruptive events. These include example, many regarded the Japanese mobile focuses on identifying undervalued and often innovations such as the tablet operator NTT DoCoMo, the world’s first broad- slightly misunderstood companies in unpop- computer which replaces the band operator, as a pioneer in its industry ular sectors and regions with the potential to clunkier personal computer. segment around the turn of the millennium. increase in value. But there are exceptions. Or it might be the refinement Why was the company valued at 18 times its “We like investing in fast-growing companies of existing products, such as book value in the early 2000s? Well, that was and navigating changing environments. But the curved flat screen TVs based pretty difficult to explain. Especially because price tag must be right and there must be good on traditional flat screen TVs. the company was operating in a market with low arguments that back up the company narrative,” But it might also be a company entry barriers for competitors. When the market says Søren Milo Christensen, portfolio manager that makes products or provides realised this, the stock price fell sharply. Today of SKAGEN Global. services less expensively and that particular company is valued at a more rea- more efficiently, such as low- sonable 1.3 times its book value. cost airlines that challenge the traditional carriers.
8 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 disrupting the becoming less popular in the GEN’s portfolios when the stock transformative process with their automotive US, private car use is exploding was on sale at the height of the intelligent technology solutions, industry in fast-growing Asia with China financial crisis in 2009. such as speed control, collision and India leading the way. That The dream of self-propelled safety and traffic sign recogni- Carmaker Hyundai Motors and is something that South Korean cars is fast becoming a reality. tion. tyre manufacturer Continental carmaker Hyundai Motors is By 2015, the German tyre man- “Many see Continental as a are SKAGEN holdings in industry benefitting from. The company ufacturer Continental estimates tyre company. I see it as a hi-tech segments and markets undergo- has followed Toyota’s lead: They that we will see fully automated company. A stock that still has a ing rapid changes. began in the discount segment automobiles on the roads. About long way to go and that trades In two decades, the number of and have since moved upwards. 90 percent of all car accidents are at a relatively modest 13 times 19 year olds with a driver’s licence With competitive prices, good fuel a result of human error. Self-pro- expected earnings,” says Geir fell from nearly 90 to c.70 percent economy and excellent warranties pelled cars are therefore expected Tjetland, portfolio manager of in the US – a country that lives for new vehicles, the company has to reduce the number of automo- SKAGEN Vekst. and breathes cars. In big cities become the world’s fourth largest bile accidents drastically. This In the same way that micropro- EFFICIENCY like Boston, New York and Wash- automaker. It is not just show- will change not only the general cessor manufacturer Intel is asso- INNOVATIONS ington, one third of all residents ing high growth sales figures in insurance industry and health ciated with “Intel inside”, Conti- no longer have a household car fast-growing emerging markets services, but also the entire trans- nental wants you to associate it and carpooling is booming. but also in countries like the US. portation industry. Continental is with cars of the future—”Conti While travelling by car is Hyundai Motors first entered SKA- determined to be a leader in this inside”.
high-flying low- However, if the price is right, economy and no expensive leg- Another similar airline company priced companies there is no reason not to invest acy structures and bureaucracy. in SKAGEN’s portfolios is Malay- in airline stocks. The Norwegian An efficient Internet-based book- sian Air Asia. Like Norwegian, Investing in airline stocks has airline Norwegian is featured in ing service, inexpensive tickets, the company is led by a visionary generally been notoriously bad several SKAGEN equity funds. In and a ‘you get what you pay for’ CEO, Tony Fernandes, who owns a for investors. But that does not 2001, the company, founded by attitude have also been import- quarter of the company. Together mean that all investments in the former fighter pilot and lawyer ant factors in challenging SAS’s with Irish Ryanair, Air Asia has the industry are poor. Bjørn Kjos, consisted of a fleet de facto monopoly. So far, Nor- lowest costs in the world among Investment guru Warren Buf- of Fokker aircraft without pas- wegian seems to be winning. airlines and is expected to grow fett is known for his aversion sengers. This was after the airline “You can find winners – also its market share significantly to airlines. He is said to have a Braathens terminated its service in the airline industry. Compa- when the ASEAN countries open Post-It note in his breast pocket agreement with Norwegian when nies with good cost structure up the aviation market to com- reminding him never to invest in it was acquired by SAS. Thirteen and focus, like Norwegian. Nor- petition in 2015. The company airlines. Virgin Atlantic’s eccen- years later, Norwegian is far more wegian’s shares have generated will also benefit from increased tric founder Richard Branson profitable than SAS - and on its an average annual return of 24 travel from China. More than perhaps put it best: “The fastest way to becoming just as big. percent since the company went 100 million Chinese people went way to become a millionaire is to Norwegian’s recipe for suc- public in 2003,” says Knut-Har- abroad on vacation in 2013 and start out as a billionaire and then cess includes a fleet of modern ald Nilsson, portfolio manager that number is expected to dou- invest in an airline.” aircraft which provides better fuel of SKAGEN Kon-Tiki. ble by 2020.
transformational took over as the company’s head two years, the stock price has is active within the media and e-commerce and now chairs Kinnevik’s board. doubled. Still, SKAGEN Kon-Tiki e-commerce is the South African She recently noted that Kinnevik manager Kristoffer Stensrud media company Naspers. The The Swedish investment com- should be seen as an opportu- believes that the company is company’s focus, like Kinnevik’s, pany Kinnevik is a typical exam- nistic and flexible investment undervalued. is entrepreneurial acquisitions ple of a company that thrives in company; one that does not seek “If you look at Kinnevik as a with good market positions in disruptive environments. With a balanced portfolio regardless traditional Swedish investment several emerging markets. One super-entrepreneur Jan Stenbeck of industry or region. company, it is not undervalued. advantage of operating primarily at the helm, Kinnevik challenged The transformation of Kinne- However, if you look at it as an in emerging markets is that you and defeated several institu- vik into a leading online player, investment company with a put your products and services tions, including the Swedish tele- with holdings in e-commerce diversified portfolio of e-com- directly on mobile without mak- vision and telephone monopo- company Zalando and busi- merce businesses, it is signifi- ing a detour through personal lies with TV3 and Comviq/Tele2. ness incubator Rocket Internet, cantly less expensive,” says computers as is the case in many After Stenbeck’s death in 2003, amongst others, has proved to Stensrud. more developed countries (read his daughter Christina Stenbeck be successful. Over the past Another SKAGEN holding that more about Naspers on page 10)
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 9 During a trip to the island of Zanzibar off the coast of Tan- zania a few years ago, a fisherman enthusiastically explained to me how much his life had changed. Thanks to his mobile phone, he was now able to keep track of weather forecasts and locate fish stocks. Not least, he could receive price inquiries from buyers in different ports while at sea and thereby optimise his sales price, catch and margins
New business models The trend ever since has been developing at a furious pace. Since the turn of the millennium the number of mobile subscribers south of the Sahara has grown fortyfold from 16.5 million to 650 million in 2013, something that has opened the eyes of foreign investors.* The US software giant Microsoft, for exam- ple, (2.12 percent of the SKAGEN Global portfolio) which has offices in fourteen African countries, launched a mobile phone specifically designed for the African market last year. For many Africans their mobile phone is also their first computer and thus the world has shrunk yet a few more sizes. Using their phone’s internet connection, for example, African students can suddenly take advantage of free lectures from leading US universities or speeches from world-leading entrepreneurs. Africa’s mobile revolution has given rise to a range of new services and businesses. One SKAGEN holding that has not been slow to capitalise on the developments is South African media and e-commerce company, Naspers (1.47 percent of SKAGEN Kon-Tiki). Naspers is a company with an entrepreneurial acquisition
Photo: ShutterstockPhoto: focus and good market positions in Africa, Brazil, China, Russia and other parts of Eastern Europe. The company owns several internet businesses and has a strong position in the fast-growing pay-tv segment in a number of African countries. One benefit of More than primarily operating in emerging markets with high mobile pene- tration is that Naspers can operate directly on mobile services communication without having to detour via personal computers. Phones that shrink the world While in the Western world we look forward to the Financial services too have developed rapidly. Instead of bank latest design and technology from companies like accounts and plastic cards, a lack of cash and few local bank Samsung and LG, the perspective is often different branches have fuelled demand for mobile bank services or e-wal- lets. Innovations have not come from the financial sector, how- for those living in the world’s emerging markets. ever. The Kenyan mobile operator Safaricom (a former holding – David Reiser in SKAGEN Kon-Tiki) is a world leader in mobile banking with Client Advisor its M-Pesa service. Similarly, the Indian mobile operator Bharti Airtel (2.50 percent in SKAGEN Kon-Tiki), with a large presence Innovation and technology have been rapidly changing every- in Africa, launched a cooperation for mobile payment services day life for people in several African countries over the past 15 with West African Ecobank in the autumn of 2013. years. Africa’s telecommunications network, for example, was What started out as a communications medium has therefore chronically dysfunctional for decades. But following great strides quickly become so much more. During a trip to the island of Zanzi- and cost efficiency within mobile technology, the continent has bar off the coast of Tanzania a few years ago, a fisherman enthusi- gradually been catching up since the turn of the millennium and astically explained to me how much his life had changed. Thanks in some cases has even overtaken the West. Investments in fixed to his mobile phone, he was now able to keep track of weather line telephony have been rejected in favour of cost-effective and forecasts and locate fish stocks. Not least, he could receive price flexible base stations for mobile telephony. As a result, not only inquiries from buyers in different ports while at sea and thereby do they have coverage, but Africa has also stepped right into the optimise his sales price, catch and margins. Naturally he was internet-based mobile era with all the possibilities it has to offer. able to manage payments via mobile, much to the bank’s chagrin.
*Source: World Bank 10 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 PLACEHOLDER TEXT
”Working in Stavanger is not all that different from working in Gothenburg. In both places, the noise of the ocean and rain drowns out the noise of the financial world. There are fewer distractions and it is simpler to pursue your own path.” Photo: David Reiser He who works hardest wins
With an abundance of investment ideas has managed to turn around sales and is now and an iron-clad faith in facts and hard expanding the company’s footprint in several about johan emerging market countries. work, SKAGEN Global’s new Swedish – Started reading economics almost team member has already left his mark. Quiet knowledge in secret, after abandoning his ‘actual’ majors in journalism and – Anna Marcus “As an investor, I am extremely facts driven. For technology at Chalmers and trans- Communication Manager example, it’s easy to be blinded by analysts’ ferred to University of Gothenburg earnings forecasts but, most often, these fre- School of Business, Economics and Law. “I realised that finance was the In order to illustrate SKAGEN’s value-based quently fail miserably when you look a couple world’s most fun job.” investment philosophy, we usually sum up our of years into the future. For that kind of horizon, goal as buying companies for 50 cents on the it’s far more interesting to look at what the com- – About the position at SKAGEN: dollar. SKAGEN Global’s new portfolio manager panies have actually delivered and gather the “A colleague at my previous job at Stena spotted an ad for the posi- Johan Swahn would add ‘… and sometimes it data yourself,” he notes. tion of senior portfolio manager in makes sense to buy three-dollar companies for He believes that, in order to be a skilled Dagens Industri.” two dollars.’ In other words, some quality com- investor, you need to be aware of your own panies that might seem expensive right now are prejudices and also of human psychology. Our – Why SKAGEN? “I’ve always liked SKAGEN’s approach and already had likely to become even more expensive over time. brains play tricks on us. For example, we tend my own retirement account invested Borrowing a term from the investment god to be more afraid of losing ten dollars than we in SKAGEN’s funds. Of course, we Warren Buffet, Johan Swahn calls these compa- are grateful when we earn the same amount. also have a phenomenal track record.” nies compounders. They are enterprises that, for Facts and a certain distance are what work long periods of time, provide exceptional return best in the analysis phase. However, during the –On commuting to Stavanger: “It on capital and shareholders with cumulative idea process, it is intuition – or one’s aggregate works out great thanks to good value over time – a kind of interest-on-interest ’quiet’ knowledge based on years of experience flight connections from Gothen- burg. I work incredibly intensively effect. – that is in control. for the three days of the week I’m As an example of this, he mentions the US “Well, there’s no shortage of ideas. The in Stavanger. The other two days I medical technology company Varian, whose more you read, the more hunches you get. The work out of SKAGEN’s Gothenburg stock has long been traded at high valuations. trick is to have the energy to follow up on those offices and can be closer to my wife and three boys (aged 8, 4 and 2).” However, the company has excellent products hunches. It’s a matter of verifying, reading up that will likely continue to generate income far on the company’s cash flows, checking what –Started working at SKAGEN in into the future. The US clothing chain, Gap, is management is doing, calling your contacts. March 2014. another of Johan Swahn’s investment ideas. For, in the end, it is he who works hardest who He believes it has a bright future; the new CEO wins,” he says with a wink.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 11 CORPORATE BOND FUND SKAGEN Credit – who would you lend money to?
Who would you lend your money to? That is the question that the portfolio managers of SKAGEN Credit must ask themselves every day when selecting investments for the newly launched corporate bond fund. The answer isn’t as simple as some may think. – Trygve Meyer Communications Advisor, Portfolio
SKAGEN Credit follows the same investment philosophy as our risk profile, or a real change in the same company’s risk profile, will other funds and selects the best bonds irrespective of credit qual- therefore result in excess return in the fund. The fund’s primary ity, sector or country. Since companies are at the heart of the source of return will derive from taking company-specific credit risk investments, the managers are also able to take advantage of by selecting corporate bonds that have the potential for a price the combined experience and analysis of SKAGEN’s equity fund change or those that have a high stable running yield relative to managers. the risk entailed. Drawing on their own experience and knowledge, the portfolio The aim in selecting the bonds is, of course, to deliver the best managers of SKAGEN Credit identify companies where the mar- possible risk adjusted returns to unit holders in the fund. ket price of the debt is disproportionate to the risk we believe is During the first month, the fund has invested in around 30 dif- involved when lending money to a specific company. The result ferent companies from countries as diverse as the US and Asia, and may either be a mispricing of the loan or that one gets yield on from sectors ranging from transport to energy. The following are the money one lends. two examples of corporate bonds the fund has invested in so far. An improvement in the market’s understanding of the company’s For more information about the fund, please visit our web pages.
operating as one company under ments are wholly independent Indian Tata Motors. of the ownership structure. The Jaguar Land Rover has a solid company has a moderate debt market position and is well burden and a good cash flow, diversified in terms of existing which is important for debt and new models. This is a good investors as this reflects the basis for delivering margins. company’s ability to be able For Tata Motors, Jaguar Land to service outstanding debt. Rover constitutes almost 90 Based on current results percent of its profits and three and the debt situation in Jaguar quarters of its sales, indicating Land Rover, the company that the company has a strong should have an investment position both as a global brand grade rating (BBB from S&P). and within its parent company. However, due to the fact that Tata Motors is planning on the British car manufacturer further expanding Jaguar Land is owned by Indian Tata, they Rover, including by increasing have a high yield rating (BB Photo: BloombergPhoto: production in order to take from S&P). Jaguar Land Rover advantage of demand in devel- cannot have a higher rating investment case 1 oping markets such as China than its parent company and british pride and spice and Brazil. There is a great deal Tata is being pulled down due of growth potential for luxury to country risk. Not many products are deemed From the 1940s right up to the cars in these markets. In short, a bond holder gets to be more typically British than present day, the two companies better paid than the compa- cars from Jaguar or Land Rover. have been through a myriad of Mother, did it need to be so ny’s risk might indicate. This Both car brands have a long his- changes and mergers, includ- high? in itself should be a good eno- tory, something that piqued the ing being subsidiaries of Ford Jaguar Land Rover is an inde- ugh reason to invest. interest of the portfolio manag- and BMW. Since the financial pendent company whereby the ers of SKAGEN Credit. crisis in 2008, they have been interest rates and debt pay-
12 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 about the master feeder structure can be found in the funds’ prospectuses. funds’ the in found be can structure feeder master the about information More fund. master the in assets their of 85% least at place and indicated hedged currencies the currency in are funds feeder The funds. feeder are NOK Credit SKAGEN and SEK Credit GBP, Credit SKAGEN SKAGEN EUR, Credit SKAGEN and structure fund feeder amaster has Credit SKAGEN
Photo: Bloomberg managers portfolio risk management and trading. and management risk analysis, corporate agement, man income fixed from ranging experience have complementary They stock-picking. cessful suc of experience standing long managers’ fund equity SKAGEN’s as well as markets, income fixed the in expertise own their on draw managers portfolio Credit SKAGEN The known, has grown into a large, alarge, into grown has known, iscommonly it as Petrobras or SA, Brasileiro Petroleo then, 1953. in Since launched was company largest Brazil’s when coined slogan the was is ours), oil (the enosso!” petroleo “O ysis of corporate bonds and portfolio construction. portfolio and bonds corporate of ysis anal and screening the in is valuable expertise technical and ment manage risk of combination The management. risk financial from abackground and skills analytical strong has He Analyst. Financial isaCertified and Finance within MBA an holds Tomas worldwide. tools management risk financial implementing Statoil in services financial within worked Tomas that Before funds. income fixed GEN’s SKA of manager portfolio as recently more and manager arisk as 2010, since both SKAGEN in worked has Middelthon Nordbø Tomas TOMAS NORDBØ MIDDELTHONTOMAS brazilian oil debt oil brazilian 2 case investment - - - reserves is fairly capital inten capital is fairly reserves of extraction the but earnings, current good has company The metres. 6-7000 as much as of a depth at Brazil in are reserves international oil company. company. oil international Around 90 percent of the the of percent 90 Around - - - - is favourable since as an inves an as since is favourable This dollars. in US the in issued bonds numerous has Petrobras tempo waltz at Samba market. emerging isan which Brazil, in domiciled is company the because simply is rating international lower the for reason The S&P). from (BBB grade investment is still it but islower, rating national (S&P). rating AAA anational has and locally creditworthy extremely as is regarded company The bonds. including money, borrowed by things other amongst financed is that program investment asignificant has Petrobras accessible production. easily more for case is the than margins lower with and sive fund. Ola holds a BSc in Business Administration and Economics. Economics. and Administration Business in aBSc holds Ola fund. the for cases investment good find to position astrong in Ola puts philosophy investment applying SKAGEN’s experience investment and skills analytical strong of A combination Group. Soya Swedish the at manager portfolio as worked Ola SKAGEN joining Before others. amongst fund Krona SKAGEN the running for responsible been has and launched He funds. income fixed SKAGEN’s of ager purchase to possibility the have you time same the At law. US to subject thereby are you tor Ola Sjöstrand has worked in SKAGEN since 2006 as portfolio man portfolio as 2006 since SKAGEN in worked has Sjöstrand Ola SJÖSTRAND OLA At the same time the inter the time same the At activities, its of aresult As SKAGEN FUND SKAGEN - - | S HALF YEAR REPORT | A reduction in debt will reduce reduce will debt in A reduction default. of risk the to relative yield good for well bodes bras Petro to money lending that owners. bond for isfavourable which level, risk the reduce will This years. few next the over debt net reduce and production increase to aims ment.” invest an with take we believe we risk the with correlate not does price market the when Particularly opportunities. with us provides “This Credit. GEN SKA manages who Middelthon, Tomas Nordbø says financing,” international want to markets rates. est inter attractive from benefit and company a Brazilian in bonds bond owners. owners. bond of benefit the to further, risk the companies from emerging emerging from companies The conclusion is therefore is therefore conclusion The it that said has Petrobras large for unusual is not “It JULY
2014 13 - - - - -
Photo: SKAGEN NOTICES
people moves
SKAGEN is pleased to announce the strengthening of its SKAGEN Vekst team with the appointment of Erik Bergöö as a new portfolio manager from 1 September 2014. Erik will join SKAGEN from Danske Bank Markets (equity research) in Copenhagen where he has been a senior analyst covering transporta- tion and industrials. He has received rapid recognition among top Danish mutual funds.
New challenges At the same time, Peter Alm- ström has decided to leave From top: Erik Bergöö and SKAGEN to seek new chal- Peter Almström. lenges. His last day will be 30 June 2014. During his two years at SKAGEN, Peter has new year´s been part of the team which conference 2015 established and now manages SKAGEN m2, a global fund Please save the date for SKAGEN’s New Year’s Conference 2015. which invests in listed prop- SKAGEN will be holding its New Year’s Conference for interna- erty companies. tional clients in three European cities in January 2015. The con- SKAGEN m2 is led by Michael ference will take place on 8 January in Copenhagen, Denmark; Gobitschek and Harald on 14 January in London, UK and on 22 January in Amsterdam, Haukås, both SKAGEN veter- the Netherlands. ans of a combined 17 years. Further information about speakers and the full conference program will be available on our webpages from September. Please visit our website to find information about previous years’ conferences.
skagen launches corporate bond fund
On 30 May 2014, SKAGEN launched SKAGEN Credit, a global cor- The fund is managed by Ola Sjöstrand, who has been managing porate bond fund. The fund’s objective is to deliver the best pos- SKAGEN’s money market funds since he joined SKAGEN in 2006. It sible risk-adjusted return by investing in the growing corporate is co-managed by Tomas Middelthon, who has also been a portfolio debt market. manager of the money market funds for the past 2 and a half years. Building upon SKAGEN’s successful investment philosophy and For further information about the fund, please read pages 12-13 combining our global company understanding with our proven of this report, or visit our webpages: www.skagenfunds.com/ bond market experience, SKAGEN Credit is actively managed and SKAGEN-Credit. invests in undervalued, under-researched and unpopular corporate bonds from around the world.
14 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Photo: Jiri Havran SEPTEMBER Save the date!
On 17 September 2014, SKAGEN will be holding an extraordinary electoral meeting and a unit holder meeting at the Stavanger Concert Hall.
Notice of extraordinary electoral meeting Proposal for new deputy director/board member We would like to welcome unit holders in SKAGEN Funds to an The election committee is seeking candidates for the board to extraordinary electoral meeting on 17 September 2014 at 6pm. be nominated at the election which will take place at the unit holder electoral meeting at the Stavanger Concert Hall on 17 Agenda September 2014. The main criteria for candidates are as follows: • Election of one chairperson and two unit holders to sign the minutes – for discussion • Experienced person of good standing • Election of one board member to the board of SKAGEN AS – • Insight into and understanding of the savings and capital markets for discussion • Managerial experience and market orientation, with an under- • Election of one deputy director to the board of SKAGEN AS – standing of the need for competence development as a pre- for discussion requisite to success • International knowledge and preferably international experience The recommendation of the election committee and other nec- • Prior board experience an advantage essary information will be published on our webpages www. • Committed individual who can and wants to contribute to skagenfunds.com ahead of the meeting for advance voting. board work in SKAGEN
Advance voting We seek a good balance between genders on the board. While we Unit holders may cast votes in advance via My Page (login from are seeking female candidates in particular, all applications will be www.skagenfunds.com) after 1 September. Alternatively you may treated equally. High demands are placed since SKAGEN’s board of send in your votes by email to [email protected] or by directors should act both as a driving force as well as fulfil a good post to SKAGEN, P.O. Box 160, 4001 Stavanger, Norway. Advance control function in a company which is extremely active interna- votes must reach SKAGEN by 12 September at the latest. Your tionally. Suggestions should be sent to the head of the election units as of 12 September will constitute the basis for the calcu- committee, Sigve Erland, by email [email protected], or lation of the number of votes. If you have voted in advance, you by phone +47 906 02 873. Suggestions may also be sent to Tone do not need to register on arrival at the meeting. Willoch Rettedal, email [email protected], by 10 August.
Unit holder meetings: estab- unit holders meeting on 17 SKAGEN Tellus. The new unit Provided that the unit holder lishment of institutional unit September. classes will replace the dis- meetings approve the estab- classes The establishment of insti- count models currently applica- lishment of unit classes, the tutional unit classes was ble for institutional investors in proposal for the change will be SKAGEN wishes to establish approved by SKAGEN’s board SKAGEN Kon-Tiki and SKAGEN sent to the Norwegian Financial unit classes for institutional of directors on 12 June 2014. Tellus. Supervisory Authority for final investors, by changing the The change relates to the equity Notice of a unit holders approval. Information will be funds’ articles of association. funds SKAGEN Vekst, SKAGEN meeting will be sent out to published on SKAGEN’s web- Changes to the articles of asso- Global, SKAGEN Kon-Tiki and unit holders in the above-men- pages with regard to when the ciation will be dealt with at the SKAGEN m2 and the bond fund tioned funds. changes are to take effect.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 15 Portfolio Managers’ report Introduction
> GLOBAL ECONOMIC INDICATORS are pointing upwards, but there are speed bumps along the way
> THE SECOND QUARTER was character- ised by major political events, most notably in India
> WIDESPREAD POLITICAL UNCERTAINTY often gives rise to attractive valuations
Photo : Bloomberg : Photo cheap companies, The election of Narendra Modi continued to push India’s stock markets > THERE ARE FEWER upwards on the hope of needed reforms. but opportunities can still be found
16 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 An eventful quarter
Low volatility in the global financial markets in the second quarter may have given the impression that summer had come early. On the contrary, the past few months have been very eventful, particularly on the political front.
The global equity markets continued their market, lower corporate tax and better economic arrows are pointing upwards, upward trajectory in the second quarter corporate governance are all important but we do not want to end up seeing wil- delivering a return of 5.7 percent in euro factors for improvement. lingness to reform dulled by less pressure terms. Unlike the previous quarters, and From an investor viewpoint, sentiment on government finances. contrary to what newspaper headlines is an important factor in the Japanese In Africa there was official clarifica- had predicted at the start of the year, equity market. It has been almost 25 tion that South Africa is no longer Africa’s emerging markets delivered higher years since the market peaked in a specu- largest economy. Now that calculation returns (+7.5 percent) than developed lative bubble. The subsequent crash left methods have changed, Nigeria’s gross markets (+5.5 percent). deep marks, and allocation to equities is domestic product rose 89 percent over- still low both among private and institu- night to USD 510 billion. Speed bumps tional investors. However, this situation During the second quarter we found out appears to be changing. Political movements that US GDP had fallen by 2.9 percent The second quarter was eventful on the from the year before. The figure was a Low interest rate climate political front. The most important event downwards adjustment of previous esti- The European Central Bank (ECB) was the was the election victory of Narendra Modi mates, but was mainly attributed to the first major central bank to introduce nega- and his BJP party in India. As former Chief extreme winter weather conditions in the tive deposit rates. The aim is to stimulate Minister of Gujarat, Modi had worked US. Subsequent industry, property mar- the loan market, and to reach its inflation hard to remove bureaucracy and pave ket and consumer indicators suggest that target of “around two percent”. In order to the way for economic growth. His ambi- activity levels are continuing to pick up. succeed, the ECB will likely have to follow tion is to do the same at national level. In Japan consumption fell sharply up with stronger measures (see the fixed The landslide election victory gave him a after value added tax was increased income comment on page 32). strong mandate, but he will need this in a for the first time in 17 years (from 5 to In peripheral Europe, Greece issued its culturally and religiously heterogeneous 8 percent). The increase is part of Prime first long-term government bond in four society with a population of more than Minister Abe’s plan to improve central years, and this was positively received 1.2 billion. government finances; and herein lies one by investors. The yield on the ten-year The Indian stock market is up 25 per- of his greatest challenges. Greek government bond has now fallen cent so far this year, so expectations of Japan must get its government finan- from almost 40 percent when the crisis reform and economic development have ces in order at the same time as it speeds was at its worst in the autumn of 2011 to left their mark on the market. Now it is up up economic growth. Measures that may below 6 percent currently. to Modi and his government to deliver. be favourable for one objective – for We see similar developments in other It was less positive that the ANC party example, higher taxes – are not neces- peripheral European governments, and won yet another victory in South Africa. Whi- sarily good for the other. So far there this has been favourable for unit holders le society and the economy struggles with are grounds for careful optimism since in SKAGEN Tellus, which has investments high unemployment and large economic consumption increased in May and the in Greek, Italian, Portuguese and Slove- differences, president Jacob Zuma has government is continuing its work on nian government bonds. It is positive been involved in corruption scandals and structural reforms. A more open labour that the pressure is diminishing and the accusations relating to the use of public
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 17 PORTFOLIO MANAGERS´ REPORT Photo: Bloomberg Photo:
The first quarter US GDP number showed a contraction of 2.9 percent, down from the negative 1 percent previously estimated. The bad weather in much of the US was a significant disruption in the economy – various indicators are now showing positive activity.
assets to fund his own luxuries. ANC play- markets which ultimately create value for Fewer cheap companies ed a crucial role during the abolition of shareholders. Nevertheless, the climate There has been a bull market in many of apartheid, but they have not managed in which a company operates does have the world’s stock exchanges for more than to deliver on important reforms in recent an impact on the overall developments. five years, and the leading S&P 500 index years. It is important for the long-term deve- has more or less tripled since the bottom In Thailand the military took power, lopment of companies that rules of law in the spring of 2009. During the peri- but the stock market continued upward. are upheld and that it is not too difficult od we have witnessed a flow of liquidity This was the twelfth coup d’état since to apply for permits or build new factories. that is unprecedented in financial history. the establishment of a constitutional That is why it is vital that politicians, par- This has driven asset prices upwards, not monarchy in 1932, so in a sense it was ticularly in emerging markets, use their because this has been an end in itself, business as usual. office to focus on continued growth and but because central banks believe that We also witnessed worrying develop- prosperity rather than to line their own the effect of prosperity which arises when ments in the Middle East where militant pockets. We are therefore pleased that equities and property increase in value Islamists in ISIS took control of important Modi won in India, and less optimistic will lead to increased consumption and regions in Iraq and Syria. In addition to about South Africa as long as Zuma is in consequently economic growth. the political and social consequences, a power. Recently volatility has fallen and further escalation may impact oil prices. At the same time, we should not forget investors are generally optimistic. Mer- Iraq is OPEC’s second largest oil produ- that areas of political uncertainty often ger and acquisition activity is back to its cer, supplying more than 3 million barrels generate attractive valuations, which may highest level since 2007, and an increa- per day. end up compensating for the political risk. singly large proportion of newly listed It is important therefore to be pragmatic in companies have never earned money. Focus on companies making investment decisions, something Equities (particularly in the US) were very In SKAGEN we focus on companies. After that we always strive to be in SKAGEN. cheap five years ago, but not any longer. all, it is companies and not governments or This does not mean that the big cor-
18 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 are key and we continue our work to find to work our continue we and key are Companies predictions. market on energy minimal use and about little very care we pass’. shall too ‘this that truth universal and adage old the remember to helpful be can it times such At levels? near-zero from away climb rates interest and mean to revert margins fit low. is record rate interest the while levels high record at are margins company US future. in look will it how not and now and here looks it as world decisions investment on thelong-term equities. to tive rela attractive particularly look longer no cash and bonds and low extremely is still level rate interest The thing. very this by characterised be to tend peaks market and eras previous of excesses extreme the reach we before go to a way have We still ‘tomorrow’. come will rection Mexico. in fields barley Heneiken’s Pictured: sow you what reap You Most importantly, however, in SKAGEN SKAGEN in however, importantly, Most –pro when say we should –or if What There is a danger, however, of basing basing of however, is adanger, There . Heineken – a holding in SKAGEN Kon-Tiki – has seized the opportunity in the low interest rate climate to take a 30 year loan with an interest rate of 2.56 percent. percent. 2.56 of rate interest an with loan year a30 take to climate rate interest low the in opportunity the seized –has Kon-Tiki SKAGEN in –aholding . Heineken - - and within markets. Some sectors are sectors Some markets. within and across value in discrepancy considerable see. like to we something is this investors, As governments. most for than better thereby and 2.56 percent, only was loan the on rate interest The quarter. the in maturity year a30 with 100 inbonds million EUR raised neken rise. to start rates interest when shower cold a for in be will option latter the choose that those returns, future good for way the pave will former the While duration. short with preferably debt, with selves them load can they or financing long-term cheap secure to climate rate interest low the of most make the can they options; companies give rates interest Low financing Cheap bad. as well as times good in titors compe their than better do will that those The SKAGEN Kon-Tiki position Hei position Kon-Tiki SKAGEN The A crucial factor recently has been the the been has recently factor A crucial - - - SKAGEN FUND SKAGEN subsequent returns. returns. subsequent and deals good for point starting excellent indexes. benchmark respective their to discount a significant at trade that companies good of consist all they is that common in have all folios port the what different, is often selection company the though Even portfolios. SKAGEN’s in reflected is turn in this and pickers stock for opportunities create kets and mar sectors across Such discrepancies point starting Excellent interesting. very looks market stock their ambitions, their on deliver can Japanese the if and US, the than cheaper is still Europe pelling. com remain valuations market Emerging regions. and countries for goes same The levels. low at are others while popular High quality at discounted prices is an prices discounted at quality High | S HALF YEAR REPORT | JULY
2014 19 - - -
Photo: Heineken SKAGEN VEKST SKAGEN A record quarter Vekst Strong acquisition activity in the global stock markets and an all-time high for the NAV of SKAGEN Vekst characterised the second quarter. As did extremely low volatility in the markets.
> Strong acquisition activity and record low volatility in The NAV for SKAGEN Vekst attained its quarter. The best performer was Norway the markets highest point yet in the middle of June. which was up eight percent in the quarter, At the end of the month, the unit price is as measured in euro, followed by Denmark > Commodities and oil roughly back to this level. Although it was (+6%) and Finland (+3%). The Stockholm a record quarter in many respects, SKAGEN stock exchange on the other hand fell among the best contri- Vekst ended the quarter with an absolute almost two percent in the second quarter. butors in the quarter return of 2.0 percent, somewhat less than the benchmark index which was up 4.9 More to gain percent in the quarter. Year to date, the The share price of Norsk Hydro has been > Fund unit price reached fund has gained 8.3 percent, and is 0.4 climbing steadily upwards since November all-time-high in mid-June percentage points ahead of its benchmark last year, when the Brazilian commodities index. company Vale sold off some of its stake in the company for NOK 25 per share. We Record strength used the opportunity to double our posi- PERFORMANCE IN EUR 2Q 2014* YTD 2014* So far this year, we have seen a great deal tion in Norsk Hydro. Since Vale reduced its of acquisition activity in the global equity position, the Hydro share price has risen SKAGEN Vekst 2.0% 8.3% markets, totalling USD 1.7 trillion. This is more than 28 percent, and the valuation is MSCI Nordic/MSCI AC 4.9% 8.0% 75 percent higher than in the same period starting to approach the company’s book ex. Nordic last year and the highest we have seen value. We still believe there is more to gain * As of 30 June 2014. since 2007. At the same time, the market as we expect that the rising aluminium upturn continues in a low volatility climate. price is due to a better balance in the mar- Volatility in the first half of the year was ket. A total halt in bauxite exports from the lowest we have seen since the spring Indonesia is changing the supply side, of 2005. Very high activity within acqui- while increased demand for aluminium sitions and not least a huge number of is being driven by global car manufactu- new stock exchange listings are often a rers amongst others. All in all this should sign that the markets are in the process result in improved earnings from Norsk Portfolio Managers of peaking. Still, very low volatility has Hydro in the future since the company has Geir Tjetland, Ole Søeberg and historically provided good stable returns around 80 percent exposure to aluminium Alexander Stensrud* in the market. The Nordic markets develo- and aluminium producers. In addition at ped somewhat differently throughout the the end of the quarter we saw a sizeable * Junior Manager, one year term
SKAGEN VEKST KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2014)
Company Holding size % Price P/E 2014E P/E 2015E P/B trailing Target price Samsung Electronics 7.5 % 1,060,000 6.1 5.7 1.0 1,500,000 Royal Caribbean Cruises Ltd 7.1 % 56 14.8 12.4 1.4 75 Teva Pharmaceutical 5.5 % 52 11.2 10.7 1.9 65 Norsk Hydro 5.4 % 33 28.5 14.6 0.9 42 Continental AG 4.8 % 169 13.4 11.6 3.6 225 Danske Bank A/S 3.6 % 154 13.0 10.6 1.1 185 Philips 3.4 % 23 15.0 12.5 1.9 40 Kia Motors 3.4 % 56,600 6.1 5.7 1.0 105,000 Norwegian Air Shuttle 3.4 % 201 28.8 7.2 2.5 340 Statoil 3.0 % 188 12.6 12.2 1.6 200 Weighted average 10 44.2 % 10.6 8.6 1.27 42% Weighted average 35 84.0 % 10.4 8.3 1.58 52% Reference index 17.5 16.0 2.11
P/E may deviate from other sources when based on SKAGEN estimates.
20 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SKAGEN VEKST Photo: BloombergPhoto:
Hydro was one of the winning portfolio holdings in the second quarter. The share price has been rising steadily since last November, and we have since doubled our position. We believe there is more to be gained and expect aluminium prices to rise.
transaction within Nordic hydropower. cuts and improvements to return on capi- impact on the share price towards the end Statskraft’s sale of hydropower produc- tal, and this has resulted in an upturn in of the quarter. tion in Finland is confirmation that Norsk the share price. We chose to reduce our Hydro’s hydropower production of just 10 position in Statoil somewhat throughout Cruises and banks TwH has a value of about NOK 37 billion, the quarter. Another positive contributor in the second or NOK 18 per share. The Korean technology giant Samsung quarter was Royal Caribbean Cruises. was once again a good contributor to the Although the share price development Cost cuts pay off fund. Some of the reason for this is the has been somewhat weaker than we had The Statoil share has been a good contri- market’s speculation around an upcoming expected so far this year, there are bright butor to the fund, and the share price is up generational shift in the family that owns spots on the horizon. Firstly, the market by 28 percent year to date and 10 percent the company. There is speculation that the leader Carnival had confirmed in its second in the second quarter. Statoil, like many company will be restructured in order to quarter report that it plans to keep prices other major oil companies, has made reduce inheritance tax. Concerns regarding up at the expense of the number of rooms numerous directional changes with cost lower smartphone sales had a negative filled. At the same time we see that both RCL and Carnival are moving capacity to Asia from the Caribbean where prices are weak due to significant overcapacity. SKAGEN VEKST 2Q 2014 (MILL. NOK) The Russian bank Sberbank performed 5 largest contributors 5 largest purchases poorly throughout the spring, as did most Statoil ASA 53 Koninklijke Philips NV 222 other Russian shares. The share price has Norsk Hydro ASA 52 Teliasonera AB 112 Samsung Electronics Co Ltd 47 Carlsberg AS-B 93 risen 20 percent over the past two months Royal Caribbean Cruises Ltd 31 Volvo AB 69 and is trading at levels from before the Kinnevik Investment AB 26 Oriflame Cosmetics SA-SDR 68 Ukraine crisis. The bank is now priced 5 largest detractors 5 largest sales at book value, has a return on equity of Norwegian Air Shuttle ASA -75 Orange -181 Stolt-Nielsen Ltd -16 Statoil ASA -139 almost 20 percent and pays 4.5 percent in Sodastream International Ltd -15 Hexagon Composites ASA -108 dividends. Combined, this indicates that Volvo AB -11 Akzo Nobel NV -97 Rec Silicon ASA -10 Mahindra & Mahindra Ltd GDR -75 Sberbank continues to be an extremely good investment.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 21 SKAGEN VEKST
Weaker for Norwegian The airline company Norwegian was one of the fund’s big detractors in the second quarter. The main reason for the poor development is that the stock market is concerned about a weaker yield in the com- pany and overcapacity in the European airline market. We are still convinced that Norwegian’s business model works. The company’s ability to keep costs low will result in improved profitability. The share price of consumer goods com- pany Philips performed relatively weakly throughout the quarter, mainly due to a weak first quarter report. The company announced on 30 June that they are plan- ning to spin off their LED lighting and auto lighting operations into a separate company, into which they will also invite external investors. Siemens did the same thing when it spun off Osram. Another newcomer in the portfolio, Volvo, also performed poorly in the second quarter. The company has long communi- cated that the effects of their cost cutting would become apparent in the second half of 2014. Recently Volvo has made it clear that the cost saving effects would only become visible towards the end of this year or even the beginning of next year.
Out after strong contribution During the quarter we exited the Nor- wegian high pressure cylinder company Hexagon. We bought the position for around NOK 6 million in 2002 and the fund received a total of NOK 115 million for the sale, providing a return of over Bloomberg Photo: 18.5 times the investment. Hexagon has The brewery giant Carlsberg was added to the portfolio as the company is the cheapest brewery of its size. The share price was depressed on the back of the Russia/Ukraine crisis since much of the company’s turnover comes from Russia. been very good at positioning itself in the market for trucks fuelled by CNG. The share price reached our target price after not least due to the Russia/Ukraine cri- we receive 6.5% in dividends. an extremely strong upturn in 2013 and sis. Around half of the company’s sales The brewery giant Carlsberg was so far this year. We also exited Austevoll, come from CIS countries. The company is brought into the portfolio as the company is Orange, Deoleo, Frontline 2012, Mahin- facing a steadily diminishing number of by far the cheapest brewery of its size. The dra, Akzo Nobel and Sistema in the period. sales consultants and must try to change share price was depressed on the back of this trend. We believe the company will the Russia/Ukraine crisis since much of the Cosmetics, telephony and beer succeed and also see significant growth company’s turnover comes from Russia. We increased our positions in GCL Poly, potential in Asia, Latin America and Afri- At the end of June the SKAGEN Vekst Kinnevik, Volvo, Toshiba and Nippon Seiki ca. These markets currently account for portfolio is priced at 9.6 times this year’s in the quarter. We also took part in capital around 30 percent of Oriflame’s turnover. earnings and 1.6 times book value. By increases in Fjordline, B&O, Avance Gas Newcomer TeliaSonera, a Swedish- way of comparison, the fund’s benchmark and Tribona. Finnish telephone operator, was listed index is priced at 17.5 times this year’s ear- Oriflame, TeliaSonera and Carlsberg are in 2000 and has since provided minimal nings and 2.1 times book value. We believe new entrants in the portfolio. Oriflame is a returns to shareholders. We believe that a that SKAGEN Vekst is well positioned to Swedish company which is currently one of higher share price is justifiable as the new deliver two-digit returns in 2014. the world’s leading direct marketing com- management is focusing on better earnings panies within cosmetics and nutritional as well as the potential sale of assets in products. The share has struggled lately, Turkcell and MegaFon. In the meantime,
22 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SKAGEN A good quarter
Global SKAGEN Global had good performance throughout the second quarter.
In our last market report we wrote that a Stolt-Nielsen felt the negative impact of possible sentiment shift was underway the cold winter in the US while Banrisul > Investors have found their way with regard to investors’ attitude to emer- reported lower than expected earnings back to emerging markets. ging markets which had for 12 months per- from its banking operations in Brazil. All formed significantly worse than markets three were punished by the stock market. in the US, Europe and Japan. In absolute terms Samsung Electronics > Earnings growth this During the second quarter we saw that was the best contributor. This was mainly year will likely be the money flow from international inve- thanks to the effect of the strong Korean stors once again made its way back to won. higher than last year’s. emerging markets and that stock markets in several of these markets developed bet- Samsung justifies its place > Good grounds for ter than the global stock market in general. Samsung’s earnings expectations have Thirty percent of SKAGEN Global’s come down somewhat recently due to pro- further upturn in the fund. assets are placed in companies whose spects of reduced margins within smart- primary place of listing is in emerging mar- phones. We also expect margins within kets. This was a drag on performance in phones to fall, but this will be partially 2013 and in the first three months of this compensated for by higher profitability PERFORMANCE IN EUR 2Q 2014* YTD 2014* year, but it was also one of the factors within tablets and component production. SKAGEN Global 6.8% 6.8% contributing to the excess return in the Even without any earnings growth this second quarter. year, we believe that Samsung Electronics MSCI ACWI 5.7% 6.9% still deserves its place in the portfolio. * As of 30 June 2014. Focus on individual companies The price of the preference share bare- Over the past few years stock markets ly reflects book equity while the return have been driven by macro trends and this on equity is almost 20 percent, so the has caused a high correlation between company still represents good value for industries and individual companies. This money. We also hope that some of the year, however, we have seen that the mar- expanding cash holdings will soon go to ket has once again become more focused shareholders in the form of dividends or on developments in individual companies. share buybacks. This appears to have had a positive effect The energy sector was the best indi- on share price developments, including for vidual sector for SKAGEN Global in the companies in our portfolio. second quarter. This was mainly due to The three largest detractors in the fund the rise in oil price, better earnings pro- over the quarter all reported relatively dis- spects for oil service companies in the US Portfolio Managers appointing results for the first quarter. – including Weatherford and Baker Hughes Akzo Nobel reported lower than expec- – and a general share price increase for Kristian Falnes, Søren Milo Christensen, Chris-Tommy Simonsen, Johan Swahn and ted sales of paint. The shipping company Russian stocks. Knut Gezelius
SKAGEN GLOBAL 2Q 2014 (MILL. NOK)
5 largest contributors 5 largest purchases Samsung Electronics Co Ltd 290 Gap Inc/The 525 Weatherford Intl Ltd 230 Lenovo Group Ltd 354 China Unicom Hong Kong Ltd 198 American International Group Inc 197 American International Group 169 Varian Medical Systems Inc 144 State Bank of India 168 Koninklijke DSM NV 144
5 largest detractors 5 largest sales Stolt-Nielsen Ltd -52 Kyocera Corp -549 Akzo Nobel NV -42 Tyco International Ltd -366 Banco Do Estado Rio Grande Do Sul SA -38 ADT Corp -224 Renault SA -37 State Bank of India -219 Vimpelcom Ltd -31 Texco Plc -207
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 23 SKAGEN GLOBAL
In the second quarter our Russian holdings (6 percent of the portfolio) made up for much of the poor developments in the first quarter when they were effected by the events in the Ukraine.
Shirts and computers US clothing retailer Gap was a newcomer in the portfolio in the quarter. The com- pany has an impressive track record, but has struggled with growth over the past few years. Gap has been through a period of res- tructuring during which it has closed down unprofitable stores, cut costs and opti- mised the supply chain to stores. These measures have boosted profit margins but the company has not been rewarded in the stock market. We find Gap’s valuation at around 13 times this year’s earnings attractive for a company that we believe will once again be seen as a growth machine after a long period of consolidation. Chinese Lenovo, the world’s largest PC manufacturer, was another new invest- ment in the quarter. The company has demonstrated impressive growth after having bought IBM’s PC division in 2005. Despite the structural downturn in the PC market, Lenovo has gone through a peri- od of profitable growth. The company’s ambition is to repeat this with substan- tial growth in the smartphone and tablet markets. Earlier this year Lenovo also bought IBM’s server division and now has the pos- sibility to make use of its solid foothold in China to grow in this market. We do not consider the price tag of 15 times expec- ted earnings in 2015 to be high given the company’s market position in China, which will act as a springboard for continued growth in an increasing number of new product areas.
Out of alarms, food and ceramic ADT, Tesco and Kyocera were all sold out of the portfolio in the quarter. With regard to the first two companies, our investment hypothesis no longer app- lied. ADT has experienced increasing com- petition within the alarm market in the US, where new participants are gaining market Gap Photo: Gap Gap was always about denim and music. In fact, one of the first proposed names for the brand was “Pants and Discs,” share. Clients are increasingly leaving the the vision being a shop that sold Levi’s and records – two coveted possessions for the day’s youth. As a homage to the “ge- company and ADT is having to invest more neration gap,” the company’s founders, Donald and Doris Fisher, instead called their fledgling company The Gap. Gap has spent year’s restructuring, cutting costs and improving margins – in our view this is not reflected in the current share price. and more to attract new clients. The food chain Tesco has been suffe- ring adversity both at home in the UK and
24 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SKAGEN GLOBAL internationally. The company’s turnover indicate that the portfolio companies will other words even though the fund price and margins have been on a downward experience earnings growth of around 10 has attained new heights, there is no need trend. The store formats do not appear percent in 2015. for vertigo. to be aligned with customers’ needs and In many cases we believe earnings esti- One should bear in mind, however, that there are few signs that the negative deve- mates to be conservative. The 35 largest the current market condition does not mean lopments will turn. positions in SKAGEN Global are valued at that there won’t be corrections. Fluctua- Having been part of the SKAGEN Global 9.6 times earnings in 2014 and 8.7 times tions in the stock market have been uncom- portfolio for a number of years, electronics expected earnings in 2015. monly low over the past two years and the and ceramic company Kyocera was sold out status quo cannot last forever. in the second quarter. We see few triggers No need for vertigo We do not wish to try and predict when for a revaluation in the next few years since Although prices are higher than they were the correction will come or what will trigger the earnings growth appears low. a year ago, we believe there are grounds it, but the fact that there will be corrections Kyocera’s inefficient capital structure for further good risk adjusted returns. In in future is fairly certain. – the company has a substantial amount of cash and stocks in other companies – appears to be cemented. Although the company is valued at a discount relative to intrinsic value, this will likely continue to be the case in future. After a period of good share price deve- lopment, several of our companies have started to approach what we believe to be their fundamental values (price targets). We have therefore significantly reduced our holdings in Tyco and Oracle during the quarter. We also trimmed our positions in Weatherford and Nordea after a period of very positive revaluation.
Better earnings growth this year The first quarter earnings season was satisfactory on the whole. There were several positive surprises with compa- nies reporting better earnings than we and the market had expected. Baker Hughes, Microsoft, Comcast, China Unicom, AIG, State Bank of India, Hannover Re and Norsk Hydro are all examples of companies that delivered better than expected earnings. The share price of all these companies rose as a result.
Over the past two years the market has Lenovo Photo: experienced a multiple expansion. That is A holding in Lenovo, the world’s largest PC manufacturer, was initiated in the quarter. The company is seeing good growth in to say that, on the whole, equities have a smart phones and tablet PCs. The price tag of 15 times earnings with growth potential in China is attractive. much higher valuation relative to current earnings. This cannot last forever, and SKAGEN GLOBAL KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2014) a prerequisite for a good stock market going forward will be that earnings growth Company Holding size % Price P/E 2014E P/E 2015E P/BV latest Price target SAMSUNG ELECTRONICS 7,7% 1 060 000 5,7 5,5 1,0 1 500 000 increases. CITIGROUP 5,2% 47,1 10,1 8,7 0,7 75 So far it appears as though the global AIG 3,3% 54,6 12,3 10,9 0,8 70 earnings growth in 2014 will overtake that NORDEA 2,4% 94,3 11,6 10,7 1,5 105 of 2013. In our companies there are seve- GAZPROM 2,2% 8,7 2,8 3,1 0,4 12 RENAULT 2,2% 66 8,9 6,7 0,8 80 ral examples of earnings growth taking off MICROSOFT 2,2% 41,7 15,4 14,4 3,9 45 as a result of better economic conditions TEVA 2,0% 52,4 11,1 10,8 1,9 65 and company improvements. CHINA UNICOM 2,0% 12 17,6 14,7 1,0 17 The fact that companies in the fund are LG CORP 2,0% 62 500 10,6 9,3 0,9 100 000 Weighted average 10 31,3% 7,8 7,3 0,9 priced significantly lower than the market Weighted average 35 63,7% 9,6 8,7 1,1 in general does not imply an absence of MSCI All Country World 15,4 13,8 2,1 earnings growth. Consensus estimates
P/E may deviate from other sources when based on SKAGEN estimates.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 25 SKAGEN Best in almost Kon-Tiki four years
SKAGEN Kon-Tiki had an extremely good second quarter. In fact it was > A number of unpopular the best quarter in almost four years and enabled the fund to make up for companies were ground lost during the first quarter, both in absolute and relative terms. rediscovered
> Companies have in general delivered somewhat better results than in 2013
> Imbalances that many people envisaged in some emerging market economies now appear
to have been resolved Bloomberg Photo: A number of unpopular companies were rediscovered in the second quarter, including Russia’s Gazprom. We reduced our through tightening and holding in the company, which now amounts to less than one percent of the portfolio. Pictured here is a detail from the gas currency corrections. pipelines at the steelworks in Russian Vyksa earlier this year. This improvement came on the back of of preference shares in two large Korean diminished geopolitical unrest, as well as companies, Hyundai Motor Co. and Sam- PERFORMANCE IN EUR 2Q 2014* YTD 2014* somewhat more balanced developments in sung Electronics, continued to contribute SKAGEN Kon-Tiki 8.0% 6.7% a number of emerging markets. New poli- positively to returns in the period. In the MSCI Emerging Markets 7.4% 6.8% tical initiatives after the election in India, case of the latter, declining momentum in stabilisation in Turkey, and developments mobile phones was counterbalanced by * As of 30 June 2014. in Russia meant that these three countries expectations of better corporate governance ended up being among the top ten best in association with a generational shift markets globally in the second quarter. in the dominating families. We reduced both positions moderately in the period, in Unpopular rediscovered order to comply with regulations regarding At the same time as we experienced favou- risk diversification. rable tailwinds, our substantial holding A number of unpopular companies were
INDIA, TURKEY AND RUSSIA VERSUS MSCI EMERGING MARKETS INDEX
% %
120 120
115 115
Portfolio Managers 110 110
Kristoffer Stensrud, Knut Harald Nilsson, Cathrine 105 105 Gether, Erik Landgraff and Hilde Jenssen 100 100
95 95
90 90
15/04 ´14 30/4 ´14 15/5 ´14 30/5 ´14 15/6 ´14 30/5 ´14
India Russia Turkey MSCI EM Source: Bloomberg
The effects of diminished political uncertainty are reflected in the developments in India, Turkey and Russia. These three markets have outperformed the general emerging markets index after the elections and reduced tension in the quarter.
26 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 had a generally weak quarter on the back back the on quarter weak a generally had companies solar the that out pointing worth is also It Solar. Yingli and GCL-Poly AirAsia, Vale, Lenovo, Airtel, Bharti in ly significant positions our increased have margins. falling of period a after stabilising are markets emerging global in companies of margins the whole the on that note we 2013.in particular In than results better somewhat delivered general in have companies portfolio The otherwise. us concern to little was There headwinds Fewer NV. OCI Egyptian did as quarter, aweak had Banrisul bank savings addition In model. H8 important new, its of launch the postpone to had quarter. the in returns good extremely red delive X5 Russian and Marfrig newcomer year’s last like LG Electronics, companies unpopular Similarly portfolio. the in each percent one than less to positions two latter the reduce to opportunity the used We likewise. bank VTB and Gazprom ner; win absolute an was India of Bank State months. three past the in rediscovered Guichard Casino French retailer On the negative side, Great Wall Motors Motors Wall Great side, negative the On As a result of these developments, we we developments, these of a result As is a newcomer in the portfolio. Today 60 percent of the company’s sales come from Brazil, Colombia, Africa and Asia. and Africa Colombia, Brazil, from come sales company’s the of percent 60 Today portfolio. the in anewcomer is - - - contributor to the fund at the same time time same the at fund the to contributor apositive was which Exchange, Stock Moscow the in invested were Gazprom and Bank VTB Russian selling from ned market. African the in offering Walmart’s is which Africa, South in Massmart pany com grocery was investment new Another Africa. in sector financial the develop to set is which Norfinance, in stake percent a9.9 bought we Norfund with boration colla In quarter. the in Turkey in bank Asia. and Africa Colombia, Brazil, in sales its of percent 60 with company grocery multi-format is aFrench company The lio. portfo the to Guichard Casino added also We have Heineken. giant, brewing Dutch in position our to substantially added fore 2013. of half there We have second the in did they than conversions currency from headwinds fewer with battle onwards, quarter this from will, markets emerging global in activities substantial with nies hold. to continues hypothesis long-term our but activity, Chinese expected than lower of Tesla in Croatia, Pacific Drilling and TSKB TSKB and Drilling Pacific Tesla Croatia, in SKAGEN Kon-Tiki exited Ericsson Nikola Nikola Ericsson exited Kon-Tiki SKAGEN We also note that European compa European that note We also A substantial portion of the assets gai assets the of portion A substantial ------SKAGEN FUND SKAGEN tructuring. res undergoing is currently which Hitachi, producer, goods is capital portfolio the in Anewcomer FamilyMart. and Holding SBI are Examples markets. emerging global in use to put they which formats business successful with companies picked cular parti in We have valuations. low have equities Japanese context, aglobal In expected. than nings ear better reporting are year, companies half first the in markets major the of kest wea the was market stock Japanese the Although is underway. latter the though as appears now It reforms. structural and easing monetary stimulus, fiscal on based policies economic Abenomics; as known is commonly what introduced He around. economy the turn to worked has Abe, Shinzo Minister, Prime Japanese the fund. the of percent two over to exposure Japanese our We increased Japan. for ahead times lighter be now may there eclipse, solar of decades two After sun rising the of Land somewhat. abated have to appears risk political the as Ever since assuming the role in 2012, in role the assuming since Ever | S HALF YEAR REPORT | JULY
2014 27 - - - -
Photo: Bloomberg provide stimuli and it seems as though the interest rate level will remain low as long as inflation stays low. The balance sheet problems that many people saw in several emerging market economies just one year ago seem now to have been resolved through tightening and currency corrections. There is still scope for interest rates to be lowered in some of the global emerging markets.
Good discount As we are not political pundits or particu- larly good at guessing exchange rates, we prefer instead to listen to the companies, find out what problems they face, what their assessments are and what opportu- nities there may be in their universe. This Photo: BloombergPhoto: plays a primary role in determining the We increased our exposure to Japan to over two percent of the fund during the quarter. Japanese Prime Minister Shinzo Abe composition of the portfolio. Subsequent- (pictured) has introduced what is commonly known as Abenomics; economic policies based on fiscal stimulus, monetary easing and structural reforms. It now appears as though the latter is underway. ly, we attenuate risk by having a sensible balance between regions and sectors. A dark future was predicted for global tions of higher growth that we saw at the India has played a significant role when emerging market companies at the start start of 2014, but the remainder of the year it comes to important shifts in sentiment. of 2014. The prediction has not come true, looks somewhat more promising. A strong majority government is already although there were substantial fluctua- The economic recovery appears to be starting to reform the economy. A consi- tions in the first quarter. These diminished spreading in Europe. China seems to be in derable proportion of the country risk has in the second quarter. a more stimulatory mode than six months therefore been taken out of the market and ago and growth in the US appears to be we have in general increased our target Recovery broadens progressing favourably after a hard win- prices by 20-25 percent. The first half year did not fulfil the expecta- ter. The national banks are continuing to At the start of the summer, the SKAGEN Kon-Tiki portfolio is valued at 8x estima- SKAGEN KON-TIKI 2Q 2014 (MILL. NOK) ted 2014 earnings and 1.2x book equity. This is, as usual, at a good discount to the 5 largest contributors 5 largest purchases Hyundai Motor Co Pref 702 Bharti Airtel Ltd 394 index. The weighted unit price potential is State Bank of India 566 Heineken NV 254 38 percent over two years, whereupon the Sistema Jsfc GDR 555 Hitachi Ltd 254 portfolio will be trading in line with the Samsung Electronics Co Ltd Pref 323 SBI Holdings Inc 223 Haci Omer Sabanci Holding AS 268 Lenovo Group Ltd 214 current valuation in the MSCI Emerging Markets Index. 5 largest detractors 5 largest sales Great Wall Motor Co Ltd -442 VTB Bank Ojsc GDR -393 A more constricted supply of capital ABB Ltd -81 State Bank of India -350 over the past few years has had the unex- Banrisul -77 Gazprom Oao ADR -240 OCI NV -59 Samsung Electronics Co Ltd Pref -137 pected side effect of bringing the focus Norwegian Air Shuttle ASA -52 Hyundai Motor Co Pref -118 back on improved corporate governance. As a result of this, a number of our unpo- SKAGEN KON-TIKI KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2014) pular companies may be substantially rerated. Nevertheless, we do not expect Weight in a return to the excellent period of 2003- Company portfolio Price P/E 2013 P/E 2014E P/B latest Target price HYUNDAI MOTOR CO 8.8 151,500 4.6 4.1 0.7 210,000 2007 quite yet. SAMSUNG ELECTRONICS 7.3 1,060,000 5.2 4.9 1.0 1,500,000 SISTEMA 3.4 31 6.6 7.7 1.4 35 STATE BANK OF INDIA 3.0 2,686 14.9 10.7 1.4 3,600 GREAT WALL MOTOR 2.8 29 8.3 6.5 2.4 55 AP MØLLER-MAERSK 2.8 13,530 15.2 11.9 1.4 15,000 BHARTI AIRTEL 2.7 336 47.9 14.0 2.2 450 MAHINDRA & MAHINDRA 2.5 1,147 15.3 12.7 2.9 1,500 SABANCI HOLDING 2.5 10 11.7 7.1 1.2 12 HEINEKEN 2.2 52 22.1 15.9 2.6 66 ABB 2.2 154 19.5 17.1 2.8 190 VALE 2.1 26 4.6 4.7 0.9 50 Weighted top 12 42.3% 7.5 6.5 1.2 Weighted top 35 68.6% 9.0 7.8 1.2 MSCI EM 12.4 11.6 1.5
P/E may deviate from other sources when based on SKAGEN estimates.
28 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SKAGEN m2 Adjustment paid off
SKAGEN m2 delivered a good absolute return in the second quarter, and is ahead of its benchmark index after the first six months of the year. > Risk reduction had a favourable effect on returns
> The fund made its first investments in Japanese property shares
> Downturn continues in China Photo: Boomberg Photo:
In connection with the crisis in the Ukraine, we initiated a new position in Russian Etalon, an attractively valued residential PERFORMANCE IN EUR 2Q 2014* YTD 2014* developer focusing on Moscow and St. Petersburg.
SKAGEN m2 7.5% 11.6% The recovery in the US property market we do not shy away from having some of MSCI ACWI Real Estate IMI 7.8% 11.1% goes a long way to explaining the 11.1 per- the above-mentioned elements, as long * As of 30 June 2014. cent rise for the overall market so far this as the dosage is correct. Our dosage was year. The US property market constitutes too high, however, and often entailed the half of the benchmark and has gained 18 same risk. In some cases, companies with percent year to date. poor liquidity were also property develo- At the start of 2014 there were expecta- pers in emerging markets. tions of a further interest rate rise after A general problem in listed companies the 10-year treasury yield passed the in Asia in particular is the relationship three percent mark. We have increased between property builders and proper- Portfolio Managers our US exposure significantly from 20 to ty-owning companies. In concrete terms Michael Gobitschek and Harald Haukås 30 percent of the fund. This was done this means that property developers partially in order to increase the liquidity launch property-owning companies in and reduce the risk in the fund. Another which they themselves have a dominant reason was because we believed that if position and to which they sell the proper- a further rise in interest rates did come, ty they build. When the property-owning this was already discounted in the share companies are not independent of pro- prices since US property shares performed perty developers, then we prefer to own relatively weakly compared to the ordinary the latter. The problem is that this entails equity market in 2013. When the interest greater risk which must be compensated rate increase failed to materialise, and for through less exposure. Given the weak indeed interest rates declined, this made emerging markets with attractive valu- a significant contribution to the general ations, we were reluctant to change the upturn in the property market. portfolio composition too quickly. Some measures needed to be taken rapidly, Reduced risk however, and this included reducing our We have carried out a number of changes exposure to property developers in India in the fund in order to reduce risk; less and China as well as our country exposure exposure to property developers, reduced to Indonesia. exposure to emerging markets, geographi- cal risk diversification and greater liquidity Less in emerging markets in the stocks we own. As active managers Our exposure to emerging markets has
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 29 SKAGEN m2 been reduced from around 50 percent at that we were less vulnerable after a weak of a share issue to buy Atrium Ljungberg, the start of the year to 41 percent in the second quarter in Indonesia and were able a Swedish office and shopping centre first quarter and 37 percent at the end of to start to increase our positions at the company. Its properties are mainly con- the second quarter. Emerging markets end of the quarter at lower share prices. centrated in Stockholm, but it also has a do not automatically mean high risk. We presence in Malmö and Uppsala. assess the non company-related risk situ- Into Japan Our largest purchase in the second ation in each country and are careful not The changes to the portfolio have not quarter was in Colombia Property Trust. to have too high a weighting in countries prevented us from extending the fund’s This is a US office company that trades with exceptional risk conditions. We con- geographical reach. We made our first at a significant discount. The company tinue to run an extremely active fund and investment in Japan in Nomura Real Estate was previously unlisted and externally own 4-6 percent positions in Brazil, the Office Fund which is a REIT that invests in managed but is now listed and has its Philippines, India, Indonesia, China and medium-sized office buildings, primarily in own management. In the same quarter Thailand. Tokyo. The company trades at a discount as it was listed, the company bought back Nevertheless, our rationale now goes to comparable companies after having car- seven percent of outstanding shares. The both ways: What happens if we are right, ried out a share issue last year that the company was the second largest detractor but almost equally important, what hap- market reacted negatively to. The Japane- in the quarter. pens if we are wrong? By having too high se office market is in a state of recovery During the quarter we exited Capita- an exposure it is difficult to take advanta- thanks to lower vacancy rates and higher malls and Ashford Prime. Capitamalls was ge of weak markets to make new purcha- rental costs. sold after a bid was made by the primary ses. A good example was our significant In connection with the crisis in the owner, Capitaland, which continues to be exposure to Indonesia at the start of the Ukraine, we also initiated a new position a position in the portfolio and which was year (10 percent of the fund). Indonesia in Russian Etalon, an attractively valued the fund’s biggest contributor in the quar- performed extremely well in the first quar- residential developer focusing on Mos- ter. Ashford Prime is a spin-off of Ashford ter and we reduced our positions there cow and St. Petersburg. We also bought a Trust, and is also managed externally by at a profit, reaching a point whereby we position in DiC Asset, a German company Trust, which we planned to sell but held can take advantage of opportunities if the with a focus on office space. The company on to too long, and we made a minor loss. market falls and make good returns if it has a high debt level, but mainly without We also reduced our position in Indiabulls continues to rise. group guarantee and security in proper- in the quarter, and sold it off entirely in the It may seem unwise to have sold the ties, which reduces the risk. The company first few days of July. The company genera- holdings while the market was still rising. trades at a 35 percent discount relative to ted good returns when it announced that However, our reduced exposure meant the underlying values. We took advantage it had bought property in Mayfair, London corresponding to 40 percent of the market value. This will tie up a great deal of capital SKAGEN M2 2Q 2014 (MILL. NOK) and increases the risk profile significantly. 5 largest contributors 5 largest purchases Indiabulls was the fund’s second largest Capitamalls Asia Ltd 3 Columbia Property Trust Inc 18 contributor in the quarter. Indiabulls Real Estate Ltd 3 Nomura Real Estate Office Fund Inc 11 Mercialys SA 2 Dic Asset AG 7 Irsa Sa ADR 2 Atrium Ljungberg AB 4 Best contribution General Growth Properties Inc 2 Bekasi Fajar Industrial Estate Tbk PT 2 The five largest contributors in the quarter 5 largest detractors 5 largest sales all have exposure to emerging markets. Franshion Properties China Ltd -2 Capitamalls Asia Ltd -18 Bekasi Fajar Industrial Estate Tbk PT -2 Indiabulls Real Estate Ltd -5 India delivered extremely high returns Columbia Property Trust Inc -1 Ashford Hospitality Prime Inc -3 after the election victory of Narendra Modi, Shimao Property Holdings Ltd -1 Lexington Realty Trust -3 Bumi Serpong Damai PT 0 General Growth Properties Inc -2 as did Argentina and Thailand. Argentinian property company IRSA, delivered over 50 percent returns despite a significant SKAGEN M2 KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2014) currency drop and a bankrupt governme- nt. This just goes to show that companies Div. Yield EBITDA Company Holding size Price P/NAV last 2014e 2014e/EV can develop differently to what the macro GENERALGROWTH PROPERTIES 4,0% 23,39 0,9% 2.6% 5.2% conditions indicate. Thai property develo- BRANDYWINE REALTY TRUST 3,7% 15,54 1,0% 3.9% 7.3% per Ananda Development made a strong ASHFORD HOSPITALITY TRUST 3,5% 11,54 0,8% 4.2% 7.8% DEUTSCHE WOHNEN AG 3,5% 15,74 1,1% 2.2% 4.9% comeback after having performed very COLUMBIA PROPERTY TRUST INC 3,1% 25,79 0,8% 4.7% 6.3% poorly since listing. HCP INC 3,1% 41,17 1,2% 5.3% 6.3% APARTMENT INVESTMENT 3,0% 32,27 0,9% 3.2% 5.8% Weak in China MERCIALYS SA 2,9% 16,95 1,0% 5.7% 5.6% PS BUSINESS PARKS 2,8% 82,96 1,0% 2.4% 5.8% On the negative side, developments in Chi- BRITISH LAND CO PLC 2,8% 7,00 1,0% 3.9% 4.8% na have been poor, and property develo- Weighted top 10 32.5% 1,0% 3.7% 6.0% pers have seen their sales volumes shrink Weighted top 35 77.8% 3.7% 7.3% steadily. There has been a general feeling MSCI ACWI Real Estate IMI 3,3% of scepticism towards China and our com-
30 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Photo: Bloomberg Photo:
We made our first investment in Japan in Nomura Real Estate Office Fund which is a REIT that invests in medium-sized office buildings, primarily in Tokyo. The Japanese office market is in a state of recovery thanks to lower vacancy rates and higher rental costs.
panies are trading at historically low levels. allowed us to start to look for new invest- tion of supply and demand. We reduced our holding towards the end of ment opportunities in a country in which With a low interest rate level globally, 2013. Franshion sold off its hotel-related we have not invested until now. a potential US interest rate increase will activities at a lower price than expected. Low interest rates and the hunt for cash attract capital from global bond investors. This, together with a generally weak market flow have pushed property prices up signi- The effect will be that even if the central in China, meant that the company was the ficantly over the past two years. We conti- bank stops buying interest rate securities, fund’s largest detractor in the quarter. Our nue to look for unpopular, undervalued and other demand will make up for it. The dif- exposure to China now consists of Soho under-researched companies, while at the ferent geographical developments are an China which is going from property deve- same time having to be realistic about the interesting aspect of property investing. loper to property owner. The company has return potential as investors are accepting This year, like last year, we have seen dif- taken advantage of the weak market to increasingly lower return requirements. ferent developments in different countries. buy back a substantial number of shares. At the end of the quarter the increasingly We are therefore convinced that property Japan which performed extremely well stronger figures from the US have turned investments in different regions can gene- last year, has fallen by 11 percent so far people’s attention back to interest rates. rate good risk-adjusted returns. this year. This has not had an impact on This may cause turbulence at the same the fund’s absolute return since we did time as it is important to remember that not have any Japanese holdings, but it also for fixed income securities it is a ques-
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 31 FIXED INCOME COMMENT Photo: Bloomberg Photo:
Mario Draghi, president of the European Central Bank (ECB), at the news conference to announce the bank’s interest rate decision in Frankfurt, Germany, on Thursday, July 3, 2014. Draghi reiterated that he’ll keep interest rates low as officials try to revive the region’s economy with a new round of emergency measures. Stronger measures needed
What will happen to inflation in the Euro- 2012 liquidity fell by 85 percent. This is In the short term, they pull down the real zone now that the European Central Bank because many banks repaid loans that the interest rate and push up inflation and eco- (ECB) has again chosen to lower policy ECB gave them at the beginning of 2012. nomic activity; in the long term, they pull rates? Precious little unless central bank What can the ECB do to correct this? inflation expectations and inflation down. head Draghi follows up with far stronger This was the experience in Japan, and measures. Large scale purchase of government it may be the experience in the Eurozone. Inflation is only 0.5% in the Eurozone, a bonds So the modus operandi of the ECB should quarter of the target. The ECB is now serio- They can do what the Federal Reserve be large-scale purchases of government usly starting to worry that low inflation will did. If the ECB buys securities instead of bonds, a quick but short stint of negati- set in permanently and that it could even- lending money, they can be masters of ve deposit rates and a loud proclamation tually end in deflation - as was the case in their own balance sheets. Then the ECB that inflation should soon be back to 2%. Japan. It was therefore not surprising that could supply so much liquidity that the Although they will try out aspects of such the ECB cut its policy rates in June and that liquidity premium in the money market a policy, I do not think the machinery can they announced new, cheap bank loans would fall to the same level as the dollar turn fast enough to have an immediate from this autumn onwards. The question is interest rates. This would pull the three- effect. Ergo chances are greatest that infla- whether the measures are strong enough month interest rate down from 0.2% to tion will fall further. to have the desired effect. I doubt it. around 0.1%. I think the ECB is going to Looking at the money market rates in try to manage this through a large-scale More measures; lower interest rates the Eurozone, these fell as much as the purchase of government bonds from the In conclusion, this is all a good argument policy rates in the period immediate- 18 countries in the Eurozone. A positive for buying government bonds in the Euro- ly before and after the ECB’s monetary side effect of this policy is that it could zone periphery. Interest rates will fall on policy meeting on 5 June. However, the also reduce the differences between the increased ECB liquidity, the ECB’s pur- level of the three-month interest rate is no long government bond yields in the diffe- chases of government bonds and lower lower now than it was in the second half rent member states. inflation expectations. What about the of 2012 and first half of 2013. And policy However this will probably not be euro? It will probably rise in value if infla- rates are effective only to the extent that sufficient to have a noticeable effect on tion in the Eurozone is lower than inflation they influence the money market rates and inflation. Draghi said in June that we had outside of it. in turn the interest rates that businesses now reached an interest rate floor - the and households actually deal with. deposit rate in the ECB is -0.1%. I do not think Draghi is being sincere. He has fur- Why are the money market rates so high ther to go and he knows it. The floor for the relative to policy rates? deposit rate is probably around -0.5%. I This is mainly due to the fact that the ECB’s believe that the ECB will take another step supply of liquidity to European banks down into the basement. And they should has shrunk dramatically recently. Liqui- get a move on. dity is how much banks combined have Low policy rates function differently in – Torgeir Høien in deposits in the ECB. From September the long run than they do in the short run. Portfolio Manager SKAGEN Tellus
32 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SKAGEN Tellus
PERFORMANCE IN EUR 2Q 2014* YTD 2014*
SKAGEN Tellus 4.2% 8.4%
J.P. Morgan GBI Broad Index Unhedged 3.1% 5.9% Photo: Bloomberg Photo: * As of 30 June 2014. Lately we have increased our position in some so-called emerging markets, particularly in South America. Our position in Chile, which amounts to 5.9 percent of the fund, has a 10-year yield that is about twice as high as that of the US. Buildings in the skyline in Santiago, Chile are pictured here.
Good performance, Portfolio Managers Torgeir Høien and Jane Tvedt good outlook
The second quarter was very favourable Lately we have increased our position in for unit holders in SKAGEN Tellus. We some so-called emerging markets, parti- believe that we are all set to deliver good cularly in South America. I say ‘so-called’ returns in the second half of the year too. because when it comes to central govern- We profited in particular from our ment finances, there are some emerging investments in the so-called peripheral markets whose central government finan- Eurozone countries in the second quarter, ces are just as solid as the most developed as we did in the three months previously. economies. Chile, for example, where we The peripheral Eurozone countries are have a position amounting to 5.9 per- those whose central government finan- cent of the fund, has a 10-year yield that ces were hardest hit in the wake of the is about twice as high as that of the US. financial crisis and recession. As far as However, the Chilean state has a net debt SKAGEN Tellus is concerned, this relates of only 5 percent of GDP. What is more, to government bonds issued by Italy, Por- according to the IMF, this will disappear tugal, Slovenia and Greece. The interest entirely over the next few years. The situ- rates have come down in these countries, ation is almost identical in Colombia and which has in turn pushed up the value of Peru; relatively poor countries, but with the bonds. relatively rich governments. They are able As set out in the general fixed income to service their own debt at an interest comment, we believe that the European rate that is attractive for SKAGEN Tellus. Central Bank (ECB) has a few cards up its One should not become fixated on the sleeve. The effect of this will likely be that low Swiss, Japanese and German long inte- there will be less of a difference between rest rates. There are around 190 countries German interest rates and interest rates in in the world, of which a great deal can be the other Eurozone countries. We do not invested in, and the number is growing believe there will be a significant upturn each year. SKAGEN Tellus is prepared to in German interest rates as these are a spread unit holders’ money around the consequence of the ECB’s proclaimed globe in its search good risk adjusted long-lasting low interest rate policy. return opportunities now and in the future.
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 33 SECURITIES PORTFOLIO SKAGEN VEKST AS OF 30-06-2014
HISTORICAL PRICE DEVELOPMENT SKAGEN VEKST (EUR)
2 40 2 40
1 60 1 60 SKAGEN Vekst
80 80
40 40
20 20
SKAGEN VEKST MSCI Nordic/MSCI AC ex. Nordic Exploring the narrow path to 10 10 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 prosperity*
A minimum of 50 percent of the assets Acquistion Market- Unrealised Share of Stock- of the SKAGEN Vekst equity fund will Security Number value NOK * value NOK* gain/loss * fund exchange at all times be invested in the Nordics. ENERGY The rest will be invested in the global Statoil ASA 1,257,489 180,184 236,911 56,727 2.76% Oslo Børs equity market. SKAGEN Vekst is Solstad Offshore ASA 1,938,650 95,344 201,620 106,276 2.34% Oslo Børs suitable for investors who want an DOF ASA 5,762,213 110,022 169,985 59,964 1.98% Oslo Børs equity fund with a good balance Bonheur ASA 1,192,594 88,117 146,689 58,572 1.71% Oslo Børs between Nordic and global companies. Ganger Rolf ASA 1,213,817 124,262 138,375 14,113 1.61% Oslo Børs The fund has a broad mandate which Rec Silicon ASA 29,162,486 42,190 103,410 61,221 1.20% Oslo Børs Siem Offshore Inc 8,036,317 68,365 67,344 -1,021 0.78% Oslo Børs gives it the freedom to invest in a GCL-Poly Energy Holdings Ltd 30,000,000 59,320 61,546 2,226 0.72% Hong Kong number of companies, industries and Eidesvik Offshore ASA 1,487,641 55,290 47,605 -7,686 0.55% Oslo Børs regions. Sevan Drilling ASA 13,252,171 83,460 40,419 -43,041 0.47% Oslo Børs Lundin Petroleum AB 301,000 35,402 37,340 1,938 0.43% Stockholm Electromagnetic Geoservices AS 5,029,207 68,319 32,137 -36,183 0.37% Oslo Børs REC Solar AS 311,524 6,230 29,112 22,881 0.34% Oslo Børs Risk On & Offshore Holding AS 105,165 0 484 484 0.01% Unotert 1 2 3 4 5 6 7 Total Energy 1,016,507 1,312,977 296,470 15.27%
Morningstar quantitative rating HHHH RAW MATERIALS Norsk Hydro ASA 14,042,679 355,936 461,021 105,086 5.36% Oslo Børs Fund start date 1 December 1993 OCI Co Ltd 39,000 33,003 40,691 7,688 0.47% Seoul Nordic Mining ASA 17,281,021 20,406 17,454 -2,952 0.20% Oslo Axess Return since start 1637% Agrinos AS 817,242 23,068 4,086 -18,982 0.05% Unotert Total Raw materials 432,412 523,252 90,840 6.09% Average annual return 14,88% INDUSTRIALS Assets under management EUR 1025 million Koninklijke Philips NV 1,518,075 304,812 295,444 -9,368 3.44% Amsterdam Norwegian Air Shuttle ASA 1,448,775 86,455 291,783 205,328 3.39% Oslo Børs Number of unitholders 74 253 Kongsberg Gruppen ASA 1,388,746 57,682 193,036 135,354 2.25% Oslo Børs Wilh. Wilhelmsen Holding ASA 900,275 64,294 173,753 109,459 2.02% Oslo Børs Subscription fee 0% Stolt-Nielsen Ltd 781,341 96,892 117,201 20,309 1.36% Oslo Børs Redemption fee 0% AirAsia Bhd 24,244,100 125,235 106,647 -18,589 1.24% Kuala Lumpur Avance Gas Holdings Ltd 654,974 71,552 102,831 31,279 1.20% Oslo Børs Management fee 1.0% per year + 10% ABB Ltd 657,625 83,190 92,864 9,673 1.08% Stockholm of return exceeding 6% LG Corp Pref 222,192 25,533 55,261 29,728 0.64% Seoul per year FLSmidth & Co A/S 110,000 34,771 37,663 2,892 0.44% København LG Corp 97,600 20,222 37,003 16,780 0.43% Seoul Minimum subscription amount One-time subscription EUR 50 Odfjell SE-A 1,222,521 54,730 35,086 -19,643 0.41% Oslo Børs Goodtech ASA 2,116,842 48,135 29,424 -18,711 0.34% Oslo Børs Authorised for marketing in Norway, Sweden, TTS Group ASA 3,222,553 32,175 19,335 -12,840 0.22% Oslo Børs Denmark, Finland, I.M. Skaugen SE 1,728,652 21,005 14,676 -6,329 0.17% Oslo Børs Netherlands, Luxembourg, Iceland, YIT Oyj 120,000 8,183 8,464 282 0.10% Helsinki UK, Switzerland, Viti Invest AS 931,782 5,644 438 -5,206 0.01% Unotert Belgium and Ireland Total Industrials 1,140,511 1,610,910 470,399 18.74% Benchmark index MSCI Nordic/ MSCI AC ex Nordic CONSUMER DISCRETIONARY Royal Caribbean Cruises Ltd 1,793,021 274,925 611,212 336,287 7.11% New York UCITS Yes Continental AG 293,500 147,369 416,394 269,024 4.84% Frankfurt Kia Motors Corporation 860,000 258,782 295,271 36,489 3.43% Seoul Portfolio managers Ole Søeberg Geir Tjetland Volvo AB 1,400,000 123,328 117,988 -5,341 1.37% Stockholm Alexander Stensrud Toshiba Corp 3,300,000 83,962 94,542 10,581 1.10% Tokyo (Junior portfolio man- Hurtigruten ASA 21,171,503 76,132 88,497 12,364 1.03% Oslo Børs ager, one-year term) Nokian Renkaat OYJ 225,000 54,613 53,797 -816 0.63% Helsinki Nippon Seiki Co Ltd 230,000 22,272 27,263 4,990 0.32% Tokyo Fjord Line AS 3,622,985 33,138 21,738 -11,400 0.25% Unotert Total Consumer Discretionary 1,074,521 1,726,701 652,180 20.08%
34 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Acquistion Market- Unrealised Share of Stock- Security Number value NOK * value NOK* gain/loss * fund exchange
CONSUMER STAPLES Casino Guichard Perrachon SA 191,785 130,604 155,769 25,166 1.81% Paris Carlsberg AS-B 150,000 93,089 99,274 6,184 1.15% København Royal Unibrew A/S 95,000 29,419 91,637 62,218 1.07% København Oriflame Cosmetics SA-SDR 462,367 68,397 66,097 -2,300 0.77% Stockholm Sodastream International Ltd 260,000 63,937 53,130 -10,807 0.62% NASDAQ Yazicilar Holding AS 689,169 23,544 37,385 13,841 0.43% Istanbul Genomar AS 483,807 11,591 140 -11,451 0.00% Unotert Norsk Marin Fisk AS 364,200 7,338 4 -7,334 0.00% Unotert Total Consumer Staples 427,919 503,435 75,516 5.86%
HEALTH CARE SKAGEN VEKST Exploring the narrow path to Teva Pharmaceutical-Sp ADR 1,461,530 386,593 471,924 85,331 5.49% NASDAQ Novo Nordisk A/S-B 290,250 62,218 81,967 19,749 0.95% København prosperity* Medi-Stim ASA 1,465,625 18,313 34,442 16,129 0.40% Oslo Børs Photocure ASA 626,466 25,235 13,782 -11,453 0.16% Oslo Børs Norchip AS 1,250,000 18,001 13 -17,988 0.00% Unotert * Beach cyclists. 1894. Detail. By Einar Hein, one Total Health Care 510,359 602,128 91,769 7.00% of the Skagen painters. This image belongs to the Skagens Museum.
FINANCIALS Danske Bank A/S 1,800,000 184,794 313,015 128,222 3.64% København Sberbank of Russia Pref 14,470,000 209,651 179,860 -29,791 2.09% Moscow SECTOR DISTRIBUTION Tribona AB 3,410,861 112,654 108,911 -3,743 1.27% Stockholm Telecom 2,5% Defensive Consumer Korean Reinsurance Co 1,466,760 50,035 92,978 42,944 1.08% Seoul Staples 5,9% Cash 1,7% Norwegian Finans Holding ASA 4,000,000 7,843 68,000 60,157 0.79% Unotert Sparebanken Øst 1,413,500 25,053 64,456 39,403 0.75% Oslo Børs Consumer Raw Materials 6,1% Hitecvision AS 793,668 7,193 63,493 56,300 0.74% Unotert Discretionary 20,1% Health Care Raiffeisen Bank International AG 275,577 65,960 53,632 -12,328 0.62% Wien 7,0% SBI Holdings Inc 400,000 33,171 30,042 -3,128 0.35% Tokyo Zoncolan ASA 730,000 4,046 1,314 -2,732 0.02% Oslo Axess Total Financials 700,399 975,703 275,304 11.35% IT 11,3% Industrials 18,7% INFORMATION TECHNOLOGY Samsung Electronics Co Ltd Pref 99,660 589,917 640,815 50,898 7.45% Seoul Financials SAP AG 440,000 176,334 209,445 33,111 2.44% Frankfurt Energy 15,5% 11,3% Q-Free ASA 3,182,604 44,688 45,193 505 0.53% Oslo Børs Bang & Olufsen A/S 320,375 24,231 24,701 470 0.29% København PSI Group ASA 3,796,612 43,431 23,425 -20,005 0.27% Oslo Børs GEOGRAPHICAL DISTRIBUTION Proact IT Group AB 258,101 8,572 20,840 12,268 0.24% Stockholm Japan 1,8% EMEA 2,5% Precise Biometrics AB 2,362,593 2,436 2,189 -247 0.03% Stockholm North America Oter Invest AS 2,566,891 6,980 1,283 -5,696 0.01% Unotert Norway 38,0% 13,2% Ceetron ASA 60,622 936 91 -845 0.00% Unotert Total Information Technology 897,525 967,983 70,459 11.26% Core EU TELECOM 13,9% Kinnevik Investment AB-B 463,583 103,529 121,483 17,954 1.41% Stockholm Peripheral EU Teliasonera AB 2,500,000 111,683 112,056 373 1.30% Stockholm Asia ex 15,2% Total Telecom 215,212 233,539 18,326 2.72% Japan 15,5%
Total equity portfolio 6,415,366 8,456,628 2,041,262 98.36% Disposable liquidity 141,327 1.64% TOP TEN INVESTMENTS Total share capital 8,597,955 100.00% Base price as of 30.06.2014 1,763.6660 Samsung Electronics Co Ltd 7.45 * Figures in 1 000 NOK. Royal Caribbean Cruises Ltd 7.11
Teva Pharmaceutical Industries 5.49
Norsk Hydro ASA 5.36
Continental AG 4.84
Danske Bank A/S 3.64
Koninklijke Philips NV 3.44
Kia Motors Corp 3.43
Norwegian Air Shuttle AS 3.39
Statoil ASA 2.76
TOTAL 10 LARGEST HOLDINGS (%) 46.92
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 35 SECURITIES PORTFOLIO SKAGEN GLOBAL AS OF 30-06-2014
HISTORICAL PRICE DEVELOPMENT SKAGEN GLOBAL (EUR)
100 100
80 SKAGEN Global 80
40 40
20 20
SKAGEN GLOBAL 10 MSCI World AC Index 10 A world of opportunities* 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 The SKAGEN Global equity fund invests in stocks worldwide. The fund Acquistion Market- Unrealised Share of Stock- seeks to maintain a balanced industry Security Number value NOK * value NOK* gain/loss * fund exchange exposure. SKAGEN Global is suitable for investors who want an equity fund ENERGY Gazprom Oao ADR 19,272,618 1,277,378 1,030,435 -246,943 2.20% London Int which invests over the whole world Baker Hughes Inc 1,936,624 504,834 873,501 368,667 1.87% New York and is therefore diversified both Weatherford Intl Ltd 5,822,007 477,661 809,570 331,909 1.73% New York geographically and by industry. The OMV AG 2,062,595 447,096 567,475 120,379 1.21% Wien fund is also suitable for those who Surgutneftegas OAO Pref 93,876,900 356,876 473,928 117,052 1.01% Moscow already have exposure towards the Technip SA 596,358 359,322 399,667 40,345 0.85% Paris Norwegian equity market, but who Afren Plc 23,356,508 246,481 356,276 109,796 0.76% London Kazmunaigas Exploration GDR 3,210,987 395,620 314,598 -81,022 0.67% London Int wish to strengthen their portfolio and Petroleo Brasileiro Pref ADR 2,541,548 383,577 243,552 -140,024 0.52% New York reduce risk. BP Plc 4,317,010 215,354 232,969 17,615 0.50% London BP Plc ADR 618,040 180,221 199,934 19,713 0.43% New York Minor items 388,207 461,277 73,070 1.0% Risk Total Energy 5,232,627 5,963,182 730,555 12.74% 1 2 3 4 5 6 7 RAW MATERIALS Morningstar quantitative rating HHHH Akzo Nobel NV 1,888,049 576,472 867,340 290,868 1.85% Amsterdam Norsk Hydro ASA 19,810,878 535,467 650,391 114,924 1.39% Oslo Børs Lipper Europe 2014 Heidelbergcement AG 1,131,185 359,962 591,753 231,791 1.26% Frankfurt Best Fund OCI Co Ltd 427,281 405,661 445,698 40,037 0.95% Seoul 10 Years Equity Global Ternium SA ADR 2,543,889 380,195 433,554 53,358 0.93% New York Mayr-Melnhof Karton AG 480,326 222,491 350,384 127,894 0.75% Wien Fund start date 7 August 1997 Koninklijke DSM NV 631,665 258,058 281,954 23,897 0.60% Amsterdam Lundin Mining Corp SDR 7,792,226 198,346 258,165 59,819 0.55% Stockholm Return since start 1 038 % Lundin Mining Corp 6,334,562 164,143 210,507 46,364 0.45% Toronto Average annual return 15.48% Vale Sa Spons pref ADR 2,670,526 202,842 193,326 -9,516 0.41% New York UPM-Kymmene Oyj 1,796,493 119,102 187,385 68,284 0.40% Helsinki Assets under management EUR 5 571 million Vale Sa Spons ADR 1,717,891 145,339 138,327 -7,012 0.30% New York Evonik Industries AG 51,752 12,223 12,617 395 0.03% Xetra Number of unitholders 86 338 Total Raw Materials 3,580,301 4,621,403 1,041,101 9.88%
Subscription fee 0% INDUSTRIALS LG Corp 2,450,793 686,437 928,935 242,497 1.99% Seoul Redemption fee 0% Tyco International Ltd 3,177,161 342,322 889,215 546,894 1.90% New York Management fee 1.0% per year + 10% Bunge Ltd 1,313,117 461,015 610,801 149,786 1.31% New York of return exceeding the Stolt-Nielsen Ltd 2,865,551 463,181 429,833 -33,349 0.92% Oslo Børs benchmark index Siemens AG 482,469 274,741 390,765 116,024 0.84% Frankfurt Koninklijke Philips NV 1,982,500 349,943 386,186 36,243 0.83% Amsterdam Minimum subscription amount One-time subscription Mosaic Co/The 1,103,401 339,466 334,879 -4,588 0.72% New York EUR 50 BW LPG Ltd 3,247,152 153,300 292,244 138,943 0.62% Oslo Børs Authorised for marketing in Norway, Sweden, Prosegur Cia de Seguridad Sa 6,506,714 211,175 287,433 76,258 0.61% Madrid Denmark, Finland, China Communications Services Corp Ltd 77,703,794 280,200 231,923 -48,277 0.50% Hong Kong Netherlands, Metso Oyj 882,429 139,980 204,910 64,930 0.44% Helsinki Luxembourg, Iceland, UK, Switzerland, Autoliv Inc 309,564 105,984 202,109 96,126 0.43% New York Belgium and Ireland Minor items 548,001 553,216 5,215 1.2% Helsinki Total Industrials 4,355,745 5,742,448 1,386,703 12.27% Benchmark index MSCI World AC CONSUMER DISCRETIONARY UCITS Yes Renault SA 1,861,779 487,037 1,030,392 543,355 2.20% Paris General Motors Co 3,493,080 496,224 783,800 287,576 1.68% New York Portfolio managers Kristian Falnes Søren Milo Christensen Toyota Industries Corp 1,788,277 319,173 566,273 247,099 1.21% Tokyo Chris-Tommy Simonsen Gap Inc/The 2,211,305 524,511 560,966 36,455 1.20% New York Johan Swahn Hyundai Motor Co Pref (2pb) 552,537 155,829 536,142 380,313 1.15% Seoul Knut Gezelius Comcast Corp 1,538,781 162,386 503,147 340,762 1.08% NASDAQ Yamaha Motor Co Ltd 3,355,311 283,582 354,095 70,513 0.76% Tokyo Dixons Retail Plc 67,060,684 94,155 349,936 255,781 0.75% London CTC Media Inc 3,764,435 187,135 254,734 67,599 0.54% NASDAQ Tata Motors Ltd-A- DVR 8,226,456 111,027 247,534 136,507 0.53% Bombay LG Electronics Inc Pref 1,090,448 278,239 244,684 -33,555 0.52% Seoul Minor items 379,789 533,760 153,972 1.1% Total Consumer Discretionary 3,479,088 5,965,463 2,486,376 12.75%
36 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Acquistion Market- Unrealised Share of Stock- Security Number value NOK * value NOK* gain/loss * fund exchange
CONSUMER STAPLES Unilever NV-Cva 975,867 174,371 261,685 87,313 0.56% Amsterdam Yazicilar Holding AS 3,928,265 95,143 213,184 118,041 0.46% Istanbul United Intl Enterprises 149,768 26,906 193,220 166,314 0.41% København Royal Unibrew A/S 187,221 47,481 180,574 133,093 0.39% København Chiquita Brands International Inc 1,655,233 120,413 107,235 -13,178 0.23% New York Apetit OYJ 228,600 25,383 33,981 8,598 0.07% Helsinki Total Consumer Staples 489,697 989,879 500,181 2.12%
HEALTH CARE Teva Pharmaceutical-Sp ADR 2,974,074 645,076 955,718 310,641 2.04% NASDAQ SKAGEN GLOBAL Roche Holding AG-Genusschein 464,283 411,220 849,049 437,829 1.81% Zürich A world of opportunities* Rhoen-Klinikum AG 2,055,663 231,909 417,098 185,188 0.89% Frankfurt Sanofi 582,614 347,732 379,790 32,058 0.81% Paris Varian Medical Systems Inc 299,140 143,700 151,653 7,953 0.32% New York Total Health Care 1,779,637 2,753,307 973,670 5.88% * From the moor north of Skagen, 1885. Detail. By P.S. Krøyer, one of the Skagen painters.
FINANCIALS Citigroup Inc 8,398,467 1,908,168 2,429,373 521,204 5.19% New York American International Group Inc 4,599,551 1,052,269 1,539,862 487,593 3.29% New York Nordea Bank AB 13,236,133 929,847 1,144,274 214,428 2.45% Stockholm SECTOR DISTRIBUTION Cheung Kong Holdings Ltd 5,893,098 471,853 641,515 169,662 1.37% Hong Kong Defensive Consumer Goldman Sachs Group Inc 495,336 360,866 507,400 146,534 1.08% New York Utilities 0,6% Staples 2,1% Hannover Rueckversicherung AG 827,902 183,121 455,834 272,713 0.97% Frankfurt Cash 3,1% Telecom 5,8% RSA Insurance Group Plc 8,468,231 369,267 421,278 52,012 0.90% London Health Care 5,9% Storebrand ASA 10,460,958 369,839 361,217 -8,622 0.77% Oslo Børs Financials 22,7% Raw Materials State Bank of India 1,198,198 234,433 328,582 94,149 0.70% National India 9,9% Banco Do Estado Rio Grande Do Sul SA Pref 9,980,716 234,211 295,422 61,211 0.63% Sao Paulo Haci Omer Sabanci Holding AS 9,985,939 221,539 285,849 64,310 0.61% Istanbul IT 12,2% EFG-Hermes Holding SAE 19,484,469 239,498 257,315 17,817 0.55% Cairo Consumer Sparebank 1 SR-Bank ASA 3,820,039 114,252 228,247 113,995 0.49% Oslo Børs Discretionary Sberbank of Russia Pref 16,483,109 200,638 205,359 4,721 0.44% Moscow 12,8% TAG Immobilien AG 2,492,482 144,744 185,922 41,178 0.40% Frankfurt Industrials Irsa Sa ADR 1,839,371 152,910 183,373 30,463 0.39% New York Energy 12,7% 12,3% Talanx AG 779,319 108,233 166,797 58,564 0.36% Frankfurt Minor items 1,034,314 970,102 -64,212 2.1% Total Financials 8,330,002 10,607,722 2,277,720 22.67% GEOGRAPHICAL DISTRIBUTION Frontier Markets 1,8% Japan 2,3% INFORMATION TECHNOLOGY South America 4,2% Samsung Electronics Co Ltd Pref 503,892 1,220,474 3,239,231 2,018,757 6.92% Seoul EMEA 7,6% Microsoft Corp 3,975,450 632,173 1,023,374 391,201 2.19% NASDAQ North America Lenovo Group Ltd 47,662,000 354,172 399,226 45,054 0.85% Hong Kong Norway 28,1% 8,4% Samsung Electronics Co Ltd Pref GDR 118,762 120,020 381,058 261,038 0.81% London Int Google Inc CLASS A 60,555 105,892 217,333 111,441 0.46% NASDAQ Peripheral EU 10,1% Google Inc CLASS C 60,555 105,892 214,045 108,153 0.46% NASDAQ Oracle Corp 848,308 137,403 212,051 74,648 0.45% NASDAQ Total Information Technology 2,676,026 5,686,318 3,010,292 12.15% Asia ex Europe Japan 20,3% 17,2% TELECOM China Unicom Hong Kong Ltd 76,770,396 671,066 728,134 57,068 1.56% Hong Kong TOP TEN INVESTMENTS Vimpelcom Ltd-Spon ADR 11,772,778 871,721 602,362 -269,360 1.29% New York First Pacific Co Ltd 45,234,923 285,825 310,136 24,311 0.66% Hong Kong Sistema Jsfc GDR 1,423,965 150,295 269,068 118,773 0.58% London Int Samsung Electronics Co Ltd 7.74 China Unicom Hong Kong Ltd ADR 2,347,421 216,459 221,205 4,746 0.47% New York Kinnevik Investment AB-B 738,060 38,582 193,347 154,766 0.41% Stockholm Citigroup Inc 5.19 Global Telecom Holding 38,328,039 100,420 169,380 68,960 0.36% Cairo Indosat Tbk PT 65,928,725 227,989 125,725 -102,264 0.27% Indonesia American International Group I 3.29 Global Telecom Holding GDR 3,499,613 48,958 76,605 27,647 0.16% London Int Nordea Bank AB 2.45 Sistema Jsfc 3,200,000 19,507 26,309 6,802 0.06% Moscow TotalTtelecom 2,630,822 2,722,271 91,449 5.82% Gazprom OAO 2.20
UTILITIES Renault SA 2.20 Centrais Eletricas Brasileiras SA Pref 7,369,985 455,723 214,042 -241,681 0.46% Sao Paulo Centrais Eletricas Brasileiras SA 2,804,245 233,863 49,896 -183,967 0.11% Sao Paulo Microsoft Corp 2.19 Total Utilities 689,586 263,937 -425,649 0.56% Teva Pharmaceutical Industries 2.04 Total equity portfolio 33,243,531 45,315,930 12,072,399 96.85% Disposable liquidity 1,475,993 3.15% China Unicom Hong Kong Ltd 2.03 Total share capital 46,791,923 100.00% Base price as of 30.06.2014 1,180.2152 LG Corp 2.00
* Figures in 1 000 NOK. TOTAL 10 LARGEST HOLDINGS (%) 31.32
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 37 SECURITIES PORTFOLIO SKAGEN KON-TIKI AS OF 30-06-2014
HISTORICAL PRICE DEVELOPMENT SKAGEN KON-TIKI (EUR)
80 SKAGEN Kon-Tiki 80 60 60
40 40
20 20
MSCI EM Index
1 10 SKAGEN KON-TIKI Leading the way in new waters* 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
The SKAGEN Kon-Tiki equity fund will invest at least 50 percent of its assets Acquistion Market- Unrealised Share of Stock- in emerging markets. These are Security Number value NOK * value NOK* gain/loss * fund exchange markets that are not included in the MSCI World Index. Nevertheless, ENERGY following on from our requirement to Tullow Oil Plc 8,111,624 765,458 723,764 -41,694 1.31% London Gazprom Oao ADR 9,459,603 633,992 505,770 -128,223 0.92% London Int have a reasonable industry balance, Afren Plc 28,782,928 356,400 439,050 82,650 0.80% London 50 percent of the fund’s assets may be GCL-Poly Energy Holdings Ltd 213,713,000 350,278 438,219 87,941 0.80% Hong Kong invested in markets that are included Rec Silicon ASA 83,201,594 133,426 295,033 161,606 0.54% Oslo Børs in the MSCI World Index. SKAGEN Archer Ltd 25,327,048 405,547 278,598 -126,950 0.51% Oslo Børs Kon-Tiki is suitable for an investor Deep Sea Supply Plc 17,250,931 170,959 171,647 688 0.31% Oslo Børs who wants to benefit from the value REC Solar AS 1,482,786 35,590 138,566 102,976 0.25% Oslo Børs Siem Offshore Inc 10,977,629 94,336 91,993 -2,344 0.17% Oslo Børs creation taking place in the world’s Total Energy 3 114 796 2 861 141 -253 655 5.59 % emerging markets. The fund offers the opportunity of extraordinary returns, RAW MATERIALS but at a higher risk than with a global/ Vale Sa Spons pref ADR 14,722,805 1,442,210 1,065,823 -376,387 1.93% New York Norwegian equity fund. Exxaro Resources Ltd 4,669,011 596,420 372,960 -223,460 0.68% Johannesburg UPL Ltd 10,294,488 191,091 358,840 167,749 0.65% National India OCI Co Ltd 300,000 253,944 312,931 58,987 0.57% Seoul Risk LG Chem Ltd Pref 233,606 148,700 273,426 124,726 0.50% Seoul
1 2 3 4 5 6 7 Asia Cement China Holdings 48,607,500 178,677 188,949 10,272 0.34% Hong Kong Vale SA-Pref A 1,231,900 210,807 89,289 -121,518 0.16% Sao Paulo Drdgold Ltd ADR 3,724,701 206,450 65,811 -140,639 0.12% NASDAQ Morningstar quantitative rating HHHHH Total Raw materials 2 954 154 2 291 543 -662 612 4.95 %
Lipper Europe 2014, Best Fund 10 years INDUSTRIALS Equity Emerging markets AP Moeller - Maersk A/S 100,000 805,315 1,524,493 719,178 2.77% København ABB Ltd 8,530,512 808,037 1,204,208 396,171 2.18% Stockholm Fund start date 5 April 2002 Frontline 2012 Ltd 12,005,000 315,941 570,238 254,297 1.03% Unotert AirAsia Bhd 107,652,800 410,921 473,402 62,481 0.86% Kuala Lumpur Return since start 507% Bidvest Group Ltd 2,878,881 335,297 469,194 133,897 0.85% Johannesburg CNH Industrial NV 7,310,545 449,860 458,815 8,955 0.83% New York Average annual return 15.87% OCI NV 1,825,927 455,606 437,496 -18,110 0.79% Amsterdam Assets under management EUR 6 564 million Enka Insaat Ve Sanayi AS 20,782,815 217,528 345,879 128,351 0.63% Istanbul Empresas ICA S.A.B 28,597,736 400,315 345,561 -54,754 0.63% Mexico Number of unitholders 72 311 Aveng Ltd 21,017,094 617,358 280,615 -336,743 0.51% Johannesburg Hitachi Ltd 5,695,000 253,599 255,851 2,251 0.46% Tokyo Subscription fee 0% Harbin Electric Company Ltd 68,000,000 614,366 253,027 -361,339 0.46% Hong Kong Golden Ocean Group Ltd 21,821,808 93,558 223,892 130,334 0.41% Oslo Børs Redemption fee 0% Yingli Green Energy Holding Co Ltd ADR 9,660,539 213,542 222,838 9,296 0.40% New York Nippon Yusen KK 11,728,000 231,788 207,346 -24,442 0.38% Tokyo Management fee 2% per year plus/ minus variable LG Corp Pref 808,430 118,266 201,013 82,747 0.36% Seoul management fee Norwegian Air Shuttle ASA 997,061 73,389 200,808 127,419 0.36% Oslo Børs Avance Gas Holdings Ltd 1,206,386 127,095 189,403 62,308 0.34% Oslo Børs Minimum subscription amount One-time subscription Golar LNG Ltd 170,000 56,250 62,107 5,857 0.11% NASDAQ EUR 50 Kerry Logistics Network Ltd 1,770,000 16,506 17,152 646 0.03% Hong Kong Authorised for marketing in Norway, Sweden, Kuribayashi Steamship Co Ltd 288,000 5,770 5,650 -120 0.01% Tokyo Denmark, Finland, Total Industrials 6 045 446 7 399 695 1 354 249 14.42 % Netherlands, Luxembourg, Iceland, UK, Switzerland, Belgium and Ireland CONSUMER DISCRETIONARY Hyundai Motor Co Pref (2pb) 2,633,025 420,391 2,554,898 2,134,506 4.64% Seoul Benchmark index MSCI Emerging Hyundai Motor Co Pref (1p) 2,507,251 402,735 2,303,610 1,900,876 4.18% Seoul Markets Index Great Wall Motor Co Ltd 67,765,000 122,922 1,545,107 1,422,185 2.80% Hong Kong London UCITS Yes Mahindra & Mahindra Ltd GDR 8,248,827 192,182 974,677 782,496 1.77% International Naspers Ltd 1,139,544 333,530 822,854 489,325 1.49% Johannesburg Portfolio managers J. Kristoffer Stensrud LG Electronics Inc Pref 3,050,000 823,954 684,384 -139,570 1.24% Seoul Knut Harald Nilsson Cathrine Gether Royal Caribbean Cruises Ltd 1,432,100 257,591 487,353 229,763 0.88% New York Erik Landgraff Apollo Tyres Ltd 21,068,598 163,689 428,229 264,540 0.78% National India Hilde Jenssen Mahindra & Mahindra Ltd 3,623,003 292,672 424,304 131,632 0.77% National India DRB-Hicom Bhd 88,408,800 365,449 373,563 8,114 0.68% Kuala Lumpur Hengdeli Holdings Ltd 162,572,800 256,632 173,757 -82,875 0.32% Hong Kong Ghabbour Auto 1,568,410 37,200 43,067 5,867 0.08% Cairo Total Consumer Discretionary 3 791 107 10 305 817 6 514 710 19.62 %
38 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 Acquistion Market- Unrealised Share of Stock- Security Number value NOK * value NOK* gain/loss * fund exchange
CONSUMER STAPLES Heineken NV 2,811,758 935,935 1,237,366 301,431 2.24% Amsterdam Cosan Ltd 10,319,782 577,467 857,871 280,405 1.56% New York Distribuidora Internacional de Alimentacion SA 12,266,933 417,657 695,802 278,146 1.26% Madrid X 5 Retail Group NV GDR 4,836,025 487,681 640,551 152,870 1.16% London Int Marfrig Global Foods SA 32,957,200 518,291 554,287 35,995 1.01% Sao Paulo Yazicilar Holding AS 8,750,391 217,127 474,877 257,750 0.86% Istanbul Familymart Co Ltd 1,776,500 491,161 469,503 -21,658 0.85% Tokyo Kulim Malaysia BHD 50,827,600 160,451 333,327 172,876 0.60% Kuala Lumpur Royal Unibrew A/S 317,977 53,374 306,688 253,314 0.56% København PZ Cussons Plc 7,625,746 127,931 277,365 149,434 0.50% London SKAGEN KON-TIKI Cia Cervecerias Unidas SA ADR 1,538,270 280,090 221,492 -58,598 0.40% New York Leading the way in new waters* Tata Global Beverages Ltd 12,304,260 167,952 216,991 49,039 0.39% National India Casino Guichard Perrachon SA 264,535 213,056 214,232 1,176 0.39% Paris Massmart Holdings Ltd 2,000,000 154,436 152,262 -2,174 0.28% Johannesburg Podravka Prehrambena Ind DD 406,584 111,935 137,282 25,346 0.25% Zagreb * Skagen reef’s lightship, 1892. Detail. East African Breweries Ltd 5,774,866 88,566 116,504 27,938 0.21% Nairobi By Carl Locher, one of the Skagen painters. The picture is owned by the Skagens Museum. United Intl Enterprises 68,500 12,939 88,374 75,435 0.16% København Pivovarna Lasko 499,286 138,712 49,395 -89,317 0.09% Ljubljana Kulim Malaysia BHD Warrants 8,437,550 - 14,842 14,842 0.03% Kuala Lumpur Total Consumer Staples 4 496 828 5 656 547 1 159 719 12.81 % SECTOR DISTRIBUTION Health Care 3,7% Raw Materials 4,9% HEALTH CARE Cash 5,6% Richter Gedeon Nyrt 9,771,722 1,060,981 1,140,926 79,945 2.07% Budapest Consumer China Shineway Pharmaceutical 36,934,000 280,298 397,673 117,375 0.72% Hong Kong Energy 5,6% Ranbaxy Laboratories Ltd 4,198,608 197,497 221,426 23,929 0.40% National India Discretionary 19,6% Supermax Corp BHD 30,573,600 117,548 122,756 5,208 0.22% Kuala Lumpur Telecom 8,1% Eis Eczacibasi Ilac Ve Sanayi 19,410,554 133,038 122,475 -10,564 0.22% Istanbul Financials Eczacibasi Yatirim Holding 3,362,732 39,931 51,098 11,167 0.09% Istanbul 15,2% Total Health Care 1 872 743 1 898 457 25 714 3,73 % IT 10,1%
FINANCIALS Defensive State Bank of India 5,999,991 1,363,394 1,645,379 281,985 2.99% National India Industrials Consumer Haci Omer Sabanci Holding AS 47,509,436 962,243 1,359,966 397,723 2.47% Istanbul 14,4% Staples 12,7% Banco Do Estado Rio Grande Do Sul SA Pref 20,364,200 482,699 602,765 120,065 1.09% Sao Paulo SBI Holdings Inc 7,759,600 603,587 582,573 -21,015 1.06% Tokyo Haitong Securities Co Ltd 59,435,600 492,612 565,603 72,991 1.03% Hong Kong GEOGRAPHICAL DISTRIBUTION Raiffeisen Bank International AG 2,887,873 605,678 562,914 -42,764 1.02% Wien Japan 2,8% JSE Ltd 6,464,519 249,899 357,555 107,655 0.65% Johannesburg North America 1,7% Frontier Markets 3,8% Moscow Exchange MICEX-RTS OAO 25,683,060 267,228 312,338 45,110 0.57% Moscow Asia ex Core EU 5,6% Kiatnakin Bank Pcl 37,429,463 334,353 311,428 -22,925 0.57% Bangkok Japan 43,9% Korean Reinsurance Co 4,860,366 182,225 308,023 125,799 0.56% Seoul South America 6,8% VTB Bank Ojsc GDR 19,865,944 592,349 297,380 -294,970 0.54% London Int Kiwoom Securities Co Ltd 1,043,205 190,648 264,767 74,119 0.48% Seoul Peripheral EFG-Hermes Holding SAE 17,939,257 353,507 236,909 -116,598 0.43% Cairo EU 8,0% Ghana Commercial Bank Ltd 18,001,604 88,821 179,145 90,324 0.33% Ghana Norway 9,6% VTB Bank Ojsc 21,701,144,197 165,582 160,813 -4,769 0.29% Moscow Dragon Capital - Vietnam Enterprise Investments Ltd 9,000,000 111,229 152,945 41,716 0.28% Dublin EMEA 17,9% Nordnet AB 5,007,907 69,539 147,911 78,372 0.27% Stockholm Value Partners Group Ltd 28,597,000 109,613 117,503 7,890 0.21% Hong Kong Diamond Bank Plc 378,971,941 79,310 91,438 12,128 0.17% Lagos VinaCapital Vietnam Opportunity Fund Ltd 4,062,000 44,474 62,333 17,859 0.11% London TOP TEN INVESTMENTS Trimegah Securities Tbk PT 700,000,000 67,131 28,618 -38,513 0.05% Jakarta Norfinance AS 285,996 28,600 28,600 0 0.05% Unotert Hyundai Motor Co 8.81 Norfinance AS Konv 21,272,400 21,272 21,272 0 0.04% Unotert EFG-Hermes Holding GDR 202,863 8,188 5,103 -3,085 0.01% London Int Samsung Electronics Co Ltd 7.28 Total Financials 8 097 127 7 584 101 -513 026 15.25 % Sistema JSFC 3.40 INFORMATION TECHNOLOGY Samsung Electronics Co Ltd Pref 424,937 1,049,840 2,731,675 1,681,835 4.96% Seoul State Bank of India 2.99 Samsung Electronics Co Ltd Pref GDR 399,732 393,328 1,282,576 889,248 2.33% London Int Lenovo Group Ltd 108,958,000 625,098 912,652 287,554 1.66% Hong Kong Great Wall Motor Co Ltd 2.80 Tech Mahindra Ltd 2,529,440 408,241 555,694 147,453 1.01% National India Skyworth Digital Holdings Ltd 37,784,181 110,340 110,681 341 0.20% Hong Kong AP Moeller - Maersk A/S 2.77 Total Information Technology 2 432 874 4 934 455 2 501 581 10.15 % Bharti Airtel Ltd 2.71 TELECOM London Mahindra & Mahindra Ltd 2.54 Sistema Jsfc GDR 9,911,992 791,297 1,872,941 1,081,644 3.40% International Bharti Airtel Ltd 43,368,848 1,656,791 1,491,584 -165,207 2.71% National India Haci Omer Sabanci Holding AS 2.47 Kinnevik Investment AB-B 2,624,324 458,112 687,485 229,373 1.25% Stockholm Indosat Tbk PT 206,683,750 557,401 394,143 -163,257 0.72% Indonesia Heineken NV 2.24 Total Telecom 3 056 785 3 360 234 303 449 8.07 % TOTAL 10 LARGEST HOLDINGS (%) 38.01 Total equity portfolio 36,972,222 52,133,534 15,161,311 94.58% Disposable liquidity 2,986,095 5.42% Total share capital 55,119,629 100.00% Base price as of 30.06.2014 672.4689
* Figures in 1000 NOK
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 39 SECURITIES PORTFOLIO SKAGEN M2 AS OF 30-06-2014
HISTORICAL PRICE DEVELOPMENT SKAGEN M2 (EUR)
17 17 MSCI All Country World Index Real Estate IMI
14 14
SKAGEN m2
SKAGEN m² 11 11 A doorway to global interest rates* 11.2012 03.2013 07.2013 11.2013 03.2014 07.2014
Acquistion Market- Unrealised Share of Stock- *Architect Ulrik Plesner`s first extension to Security Number value NOK * value NOK* gain/loss * fund exchange Brøndum`s hotel. 1892. Detail. By Johan Peter von Wildenradt, one of the Skagen painters. FINANCIALS The picture belongs to the Skagens Museum. General Growth Properties Inc 150,000 20,061 21,538 1,477 4.05% New York Brandywine Realty Trust 208,000 17,925 19,842 1,917 3.73% New York EQUITY FUND SKAGEN m2 Ashford Hospitality Trust 265,000 12,475 18,773 6,298 3.53% New York Deutsche Wohnen AG 140,000 12,633 18,509 5,876 3.48% Frankfurt Risk Columbia Property Trust Inc 105,800 17,667 16,750 -917 3.15% New York 1 2 3 4 5 6 7 HCP Inc 64,700 14,683 16,352 1,669 3.07% New York Apartment Investmest & Management Co 80,000 13,753 15,848 2,095 2.98% New York Fund start date 31 October 2012 Mercialys SA 109,000 13,552 15,523 1,971 2.92% Paris Return since start 5 % PS Business Parks Inc 29,000 12,599 14,767 2,168 2.78% New York British Land Co Plc 200,891 10,270 14,753 4,483 2.77% London Average annual return 2,76% Global Logistic Properties Ltd 1,096,000 13,705 14,561 856 2.74% Singapore Assets under EUR 63 million Soho China Ltd 2,721,500 13,082 13,170 88 2.48% Hong Kong management Ticon Industrial Connection Pcl-Nvdr 3,839,220 12,648 12,639 -9 2.38% Bangkok Lexington Realty Trust 183,500 12,568 12,442 -126 2.34% New York Number of unitholders 5 128 Olav Thon Eiendomsselskap ASA 106,000 9,696 12,031 2,335 2.26% Oslo Børs Subscription fee 0% Mapletree Logistics Trust 1,960,753 11,329 11,240 -89 2.11% Singapore Nomura Real Estate Office Fund Inc 385 10,623 11,159 535 2.10% Tokyo Redemption fee 0 % SM Prime Holdings Inc 5,000,000 12,092 11,154 -939 2.10% Philippines SL Green Realty Corp 16,500 8,101 11,024 2,923 2.07% New York Management fee 1.5 % per year plus/ Franshion Properties China Ltd 6,684,000 12,599 10,799 -1,799 2.03% Hong Kong minus variable management fee Unibail-Rodamco SE 6,000 9,433 10,689 1,256 2.01% Amsterdam CA Immobilien Anlagen AG 87,000 9,501 10,037 536 1.89% Wien Minimum subscription amount One-time subscription Affine SA 76,000 7,773 9,320 1,547 1.75% Paris EUR 50 Phoenix Mills Ltd 275,000 7,552 9,022 1,470 1.70% National India Authorised for Norway, Sweden, Citycon Oyj 400,000 6,828 9,004 2,176 1.69% Helsinki marketing in Denmark, Finland, BR Malls Participacoes SA 170,000 11,546 8,794 -2,753 1.65% Sao Paulo Netherlands, Luxem- CBL & Associates Properties Inc 70,169 7,436 8,133 697 1.53% New York bourg, Iceland, UK, Switzerland and Ireland Ascendas India Trust 1,884,000 7,134 7,741 607 1.46% Singapore First Real Estate Investment Trust 1,302,000 7,150 7,592 442 1.43% Singapore Benchmark index MSCI All Country World Emlak Konut Gayrimenkul Yatirim Ortakligi AS 935,000 6,746 7,198 453 1.35% Istanbul Index Real Estate IMI Dic Asset AG 105,000 6,829 7,038 209 1.32% Xetra UCITS Yes Ananda Development PCL-Nvdr 13,819,200 5,738 6,955 1,217 1.31% Bangkok Irsa Sa ADR 69,500 4,847 6,891 2,044 1.30% New York Portfolio managers Michael Gobitschek, CapitaLand Ltd 400,000 6,017 6,298 281 1.18% Singapore Harald Haukås, General Shopping Brasil SA 282,000 8,536 6,022 -2,514 1.13% Sao Paulo BR Properties SA 160,000 10,258 5,911 -4,347 1.11% Sao Paulo Gecina SA 6,500 4,494 5,806 1,312 1.09% Paris GEOGRAPHICAL DISTRIBUTION Summarecon Agung Tbk PT 9,673,800 6,248 5,682 -566 1.07% Indonesia Japan 2,1% Bekasi Fajar Industrial Estate Tbk PT 25,856,300 6,162 5,647 -515 1.06% Indonesia EMEA 1,7% Peripheral EU 3,5% Parkway Life Real Estate Investment Trust 472,000 5,732 5,481 -251 1.03% Singapore Keppel Land Ltd 325,000 5,733 5,405 -328 1.02% Singapore Asia ex South America 7,0% Shimao Property Holdings Ltd 476,000 6,108 5,368 -740 1.01% Hong Kong Japan 31,1% Norway Rockwell Land Corp 20,000,000 8,187 5,260 -2,926 0.99% Philippines 8,7% Vista Land & Lifescapes Inc 6,039,700 4,818 5,199 381 0.98% Philippines Minor items 29,689 29,869 180 5.6% Total Financials 462,552 493,232 30,680 92.73% Core EU 16,0% North INTEREST INSTRUMENTS America 30,0% General Shopping Finance 1,000,000 5,429 5,796 367 1.09% Euroclear Total Interest Instruments 5,429 5,796 367 1.09%
Total equity portfolio 467,982 499,028 31,046 93.82% Disposable liquidity 32,850 6.18% Total share capital 531,878 100.00% Base price as of 30.06.2014 118.8935
* Figures in 1 000 NOK.
40 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 SECURITIES PORTFOLIO SKAGEN TELLUS AS OF 30-06-2014
Security Maturity Coupon value Face *** Cost price *** Market Price Accrued interest *** Market *** value Market value incl. accrued interest *** Unrealised gain/loss *** of Share fund
GOVERNMENT BONDS Brazilian Government 10.01.2028 10.25 13,200 37,822 296.22 1,784 39,101 40,885 1,280 5.95% Chilean Government 05.08.2020 5.50 3,410,000 41,787 1.17 841 39,737 40,577 -2,051 5.90% European Bank Recon & Dev 17.06.2015 0.50 43,000 41,462 98.48 8 42,347 42,354 884 6.16% Colombian Government 14.04.2021 7.75 10,500,000 37,602 0.38 368 39,427 39,795 1,824 5.79% Danish Government 16.11.2015 4.00 17,000 19,631 118.74 476 20,186 20,662 555 3.01% Italian Government 02.02.2037 4.00 6,865 58,001 887.50 949 60,927 61,876 2,926 9.00% Hellenic Republic Government 24.02.2027 2.00 8,350 47,610 626.57 484 52,318 52,803 4,709 7.68% Lithuanian Government 22.01.2024 3.37 2,000 17,208 914.54 247 18,291 18,538 1,083 2.70% SKAGEN TELLUS Portugese Government 15.04.2021 3.85 6,750 52,513 880.79 454 59,453 59,908 6,940 8.71% A doorway to global interest rates* Slovenia Government 30.03.2026 5.12 5,400 39,296 976.78 586 52,746 53,332 13,450 7.76% UK Government 08.09.2014 5.00 3,440 35,528 1,057.04 563 36,362 36,926 834 5.37% SKAGEN Tellus is an actively managed European Bank Recon & Dev 28.05.2015 5.00 240,000 23,976 10.09 111 24,225 24,336 249 3.54% global bond fund investing in bonds Mexican Government 20.11.2036 10.00 40,000 24,368 66.13 53 26,454 26,506 2,085 3.86% New Zealand Government 15.04.2015 6.00 2,000 10,596 547.45 134 10,949 11,083 353 1.61% issued by governments, regional Peruvian Government 12.08.2037 6.90 12,000 26,728 229.39 694 27,527 28,221 799 4.11% authorities and financial institutions Turkish Government 08.03.2023 7.10 11,000 28,399 261.45 639 28,759 29,398 360 4.28% all over the world. SKAGEN Tellus is a US Government 21.08.2014 0.00 12,500 74,159 614.42 0 76,802 76,802 2,643 11.17% good option for investors who wish to US Government 18.09.2014 0.00 3,000 18,444 614.42 0 18,432 18,432 -12 2.68% invest in global bonds and who have an investment horizon of at least 12 Total Bond Portfolio 513 158 6 233 805 519 816 526 050 6 658 98,61 % Disposable liquidity 4,888 0 4,997 4,997 109 0.73% months. Investors must be tolerant of TOTAL 520 489 6 233 805 527 238 533 471 6 749 100,00 % exchange rate fluctuations TOTAL 520 489 6 233 805 527 238 533 471 6 749 100,00 % Effective underlying return 4.11% Effective yield to clients* 3.31% Duration** 5.74 * Interior. Brøndum’s annex, ca 1920. Detail. By Anna Ancher, one of the Skagen painters. The picture is owned by the Skagens Museum. * Effective underlying return adjusted for managment fee. ** Duration is a simplified expression of how much the price of the security will change if the interest rate changes by one percentage point. *** Figures in 1000 NOK Risk Effective interest is the average annual return of an interest bearing security until maturity. 1 2 3 4 5 6 7 Securities are valued at market price as of 30.06.2014 Bonds and notes for which there are no market maker prices are at all times valued against the applicable yield curve.
Morningstar HHHHH Unit price as of 30.06.2014 111,3425
Fund start date 29 September 2006
Return since start 55 %
Average annual return 5,81%
Assets under EUR 82 million management
Number of unitholders 2 099
Subscription fee 0 %
Redemption fee 0 %
Management fee 0,8 % per year
Minimum subscription amount One-time subscription EUR 50
Authorised for Norway, Sweden, marketing in Denmark, Finland, Netherlands, Luxem- bourg, Iceland, UK and Switzerland
Benchmark index J.P. Morgan GBI Broad Index Unhedged in EUR
UCITs Yes
Portfolio managers Torgeir Høien Jane Tvedt
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 41 RETURN AND RISK MEASUREMENTS Return and risk measurements
Returns in euro (all return figures beyond 12 months are annualised)
As of 30.06.2014 YTD % Last Last 2 Last 3 Last 5 Last 7 Last 10 Since Year Years Years Years Years Years Start NOTICE SKAGEN Vekst A 8.3% 19.7% 12.7% 6.0% 12.7% 0.8% 11.2% 14.9% MSCI Nordic/MSCI AC ex. Nordic 8.0% 18.9% 15.3% 11.1% 18.5% 2.0% 11.7% 9.9% Historical returns are no guarantee for future SKAGEN Global A 6.8% 16.9% 17.3% 11.1% 15.9% 4.2% 11.8% 15.5% returns. Future returns will depend, inter alia, MSCI World AC 6.9% 16.4% 15.4% 12.4% 14.6% 2.6% 5.6% 3.2% on market developments, the fund manager’s SKAGEN Kon-Tiki A 6.7% 15.9% 9.8% 4.2% 13.3% 5.5% 16.2% 15.9% skill, the fund’s risk profile and subscription MSCI Emerging Markets 6.8% 8.9% 4.4% 1.6% 9.7% 2.1% 10.6% 8.0% and management fees. The return may become SKAGEN m2 A 11.6% 0.1% 2.8% negative as a result of negative price develop- MSCI All Country World Index Real Estate IMI 11.1% 5.7% 7.5% ments. There are no subscription costs for our SKAGEN Tellus A 8.43% 3.39% 4.55% 6.95% 7.75% 5.51% 5.81% funds. J.P. Morgan GBI Broad Index Unhedged in EUR 5.86% 1.57% -2.97% 2.53% 3.65% 4.98% 3.91%
* The benchmark index prior to 1/1/2010 was OSEBX and prior to 1/1/2014 it was OSEBX / MSCI AC (50/50). SKAGEN Vekst has a fixed management fee of ** The benchmark index prior to 1/1/2010 was the MSCI World Index. 1% per annum. Returns exceeding 6 % p.a. are *** The benchmark index prior to 1/1/2013 was Barclay’s Capital Global Treasury Index 3-5 years. shared 90/10 between the unitholders and the management company. A charge of the variable management fee may solely be made if the unit value as at December 31st exceeds the unit Risk and performance measurements value at the previous charge/settlement of the variable management fee (the high watermark). As of 30.06.2014 SKAGEN SKAGEN Vekst SKAGEN Global SKAGEN Kon-Tiki Tellus MEAN VARIANCE ANALYSIS LAST 5 YEARS SKAGEN Global has a fixed management fee Standard Deviation Fund 15.4% 12.9% 15.1% 6.0% of 1% per annum. Better value development Standard Deviation Benchmark 14.2% 10.1% 14.4% 8.1% measured in percent in the fund’s net asset Sharpe Ratio Fund 0.73 1.09 0.78 1.14 value compared with the MSCI AC World Index Sharpe Ratio Benchmark 1.15 1.29 0.60 0.36 (in NOK) is shared 90/10 between the unithol- Tracking Error 5.7% 4.9% 4.6% 5.8% ders and the management company. Information Ratio -0.88 0.23 0.70 0.67 Correlation 0.93 0.94 0.95 0.69 Alpha -5.2% -1.7% 3.2% SKAGEN Kon-Tiki has a fixed management fee of Beta 1.01 1.21 1.00 2% per annum. Better value development mea- R2 86% 88% 91% sured in percent in the fund’s net asset value compared with the MSCI Emerging Markets GAIN LOSS ANALYSIS LAST 5 YEARS Index (in NOK) is shared 90/10 between the Relative Gain 94% 113% 108% 107% unit holders and the management company. Relative Loss 122% 118% 93% 62% However, the total annual management fee Relative Gain Loss Ratio 0.77 0.96 1.17 1.73 charged may not exceed 4% of the fund’s ave- Positive Index Divergence 5.8 7.4 7.9 9.8 rage annual asset value. Negative Index Divergence 10.4 6.3 4.6 5.8 Index divergence ratio 0.55 1.19 1.71 1.70 SKAGEN m2 has a fixed management fee of 1.5% Percentage Positive Index Divergence 36% 54% 63% 63% per annum. Better/worse value development Percentage Positive Index Divergence Market Up 35% 65% 55% 33% measured in percent in the fund’s asset value Percentage Positive Index Divergence Market Down 39% 36% 71% 91% Consistency 40% 52% 53% 63% compared with the MSCI ACWI Real Estate IMI Consistency when market is up 36% 59% 48% 45% (in NOK) is shared 90/10 between the unit hol- Consistency when market is down 48% 38% 59% 83% ders and the management company. The total management fee charged constitutes a maxi- VALUE AT RISK LAST 5 YEAR mum of 3 % and a minimum of 0.75 % per year. Value at risk: observed, NAV -7.1% -5.8% -7.7% -1.9% Value at risk: observed, Benchmark -6.1% -3.1% -6.9% -3.1% SKAGEN Global, SKAGEN Kon-Tiki and SKAGEN Relative Value at Risk, observed -2.9% -2.2% -1.6% -3.3% m2 may be charged a variable management fee even if the fund’s return has been nega- SINCE START tive, as long as the fund has outperformed the Relative Gain 96% 153% 121% 66% benchmark. Conversely, the fund may have a Relative Loss 79% 105% 98% 68% positive return without being charged a vari- Relative Gain Loss Ratio 1.22 1.46 1.24 0.97 able management fee, as long as there is no Positive Index Divergence 14.20 18.99 12.42 12.64 outperformance of the benchmark. The fixed Negative Index Divergence 9.76 8.20 5.50 14.96 Index divergence ratio 1.46 2.32 2.26 0.85 management fees are calculated daily and charged quarterly. The variable management fees are calculated daily and charged annually.
The annual management fee is 0.8% for SKA- GEN Tellus. The management fee is calculated RIGHT OF CANCELLATION daily and charged quarterly. When you buy fund units, according to the Right of Cancellation Act (Act no. 105 of 2001-12-12, ref. §22b, litra a), clients have no right of cancellation. However, when subscriptions are sent to us by mail/fax or are carried out via the Investor client at VPS (My Account), Please refer to the product sheets and prospec- you are entitled to information about the fund and the management company immediately after the purchase. The information is avail- tuses for a detailed description of the cost, etc. able in the fund’s product sheet (simplified prospectus) and the general commercial terms. Statutory information is sent to unit holders in the welcome letter immediately after the first subscription. Subsequently, unit holders can find all information on our website www. They are available upon request from SKAGEN skagenfunds.com as well as in the annual report. Funds or at www.skagenfunds.com
42 SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 FINANCIAL STATEMENT AS OF 30 JUNE 2014
SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN Income statement Vekst Global Kon-Tiki m2 Tellus Avkastning Høyrente Høyrente Inst. Krona** Balanse 60/40 (all figures in NOK 1000) 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 PORTFOLIO REVENUE AND COSTS Interest income and costs 2 369 1 917 -5 652 336 9 741 20 461 45 592 15 300 7 415 1 094 Dividends 142 317 682 073 444 149 11 260 ------Realised capital gain/loss 641 037 1 435 971 1 313 524 -24 100 -2 255 358 1 068 570 - 3 848 Change unrealised capital gain/loss 12 404 1 315 558 2 060 526 74 858 44 633 30 428 -1 035 -563 -525 7 656 Garantee commision - 1 101 ------Broker's fee -4 378 -14 582 -17 587 -548 -10 -7 -2 -1 -7 - Currency gain/loss -201 64 135 60 786 -256 -762 -4 216 - - - - PORTFOLIO RESULT 793 547 3 486 173 3 855 746 61 551 51 347 47 024 45 623 15 307 6 883 12 598
MANAGEMENT REVENUE AND COST1 Management fee - fixed -41 726 -224 290 -482 498 -3 677 -2 207 -3 246 -4 148 -887 -763 - Management fee - variable* -50 445 -548 -2 408 -202 ------ASSET MANAGEMENT RESULT -92 170 -224 838 -484 906 -3 879 -2 207 -3 246 -4 148 -887 -763 - RESULT BEFORE TAX 701 376 3 261 334 3 370 841 57 671 49 140 43 778 41 475 14 419 6 120 12 598
Tax cost -7 254 -61 508 -42 644 -3 132 ------429 NET INCOME FOR THE PERIOD 694 122 3 199 826 3 328 197 54 540 49 140 43 778 41 475 14 419 6 120 12 168
SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN Vekst Global Kon–Tiki m2 Tellus Avkastning Høyrente Høyrente Inst. Krona** Balanse 60/40 Balance sheet 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 30.06.2014 ASSETS Norwegian securities at cost price 2 189 674 1 655 267 1 499 714 9 696 - 777 189 2 199 793 509 833 - 211 300 Foreign securities at cost price 4 225 692 31 588 265 35 472 509 458 286 635 131 278 412 - - 739 279 26 500 Unrealised capital gains/loss 2 041 262 12 072 399 15 161 311 30 959 38 913 35 607 8 872 1 065 1 279 22 903 Accrued interest securities - - - 87 8 585 5 248 8 165 2 008 2 354 1 223 TOTAL SECURITIES PORTFOLIO 8 456 628 45 315 930 52 133 534 499 028 682 629 1 096 456 2 216 830 512 905 742 912 261 926 Dividend receivable 11 882 66 658 51 527 938 ------Opptjente renter bank ------TOTAL ACCRUED INCOME 11 882 66 658 51 527 938 ------Deferred tax - - - 244 ------Accounts receivable - brokers 90 667 39 992 24 789 1 745 ------Accounts receivable - management company 3 11 22 3 3 2 - - - - Tax receivable on dividends 3 193 50 114 3 833 441 967 - - - - - Other receivables - - - 268 - 7 887 - - - - TOTAL OTHER RECEIVABLES 93 863 90 117 28 644 2 701 970 7 889 - - - - Bank deposits 188 689 1 649 556 3 813 173 34 481 20 366 425 613 985 060 490 369 37 176 2 095 TOTAL ASSETS 8 751 062 47 122 261 56 026 878 537 148 703 965 1 529 958 3 201 890 1 003 274 780 087 264 021
EQUITY CAPITAL1 Unit capital at par value 492 397 3 978 583 8 290 728 447 872 584 474 1 081 553 3 119 715 992 041 742 155 211 543 Premium -2 466 761 15 698 924 21 597 575 45 271 65 089 392 879 24 894 -5 093 5 176 20 886 TOTAL PAID-IN EQUITY CAPITAL -1 974 364 19 677 507 29 888 303 493 143 649 562 1 474 431 3 144 609 986 948 747 331 232 429 Retained earnings 10 565 533 27 138 080 25 174 738 37 257 38 896 48 764 51 300 15 917 8 038 31 335 TOTAL EQUITY CAPITAL 8 591 169 46 815 587 55 063 041 530 400 688 458 1 523 195 3 195 909 1 002 865 755 369 263 764
DEBT Deferred tax ------111 Accounts payable - brokers 78 229 61 740 686 889 2 891 13 741 5 030 - - 19 925 - Accounts payable - management company 71 726 113 095 250 282 2 078 1 189 1 733 2 059 410 374 - Other debt 9 938 131 839 26 665 1 779 576 - 3 922 - 4 420 146 TOTAL OTHER DEBT 159 893 306 674 963 837 6 749 15 507 6 762 5 981 410 24 719 257 TOTAL DEBT AND EQUITY CAPITAL 8 751 062 47 122 261 56 026 878 537 148 703 965 1 529 958 3 201 890 1 003 274 780 087 264 021
Class Number of units issued A 4 920 567 37 710 693 71 385 509 4 468 315 5 835 215 10 815 526 31 197 152 9 920 408 7 421 549 2 115 428 Base price per unit 30.06.2014 A 1744,7817 1174,3599 665,9245 118,8249 117,9636 140,8322 102,4461 101,0968 101,7804 124,6858 Number of units issued B 3 403 2 075 141 11 521 768 10 404 9 524 - - - - - Base price per unit 30.06.2014 B 1745,9567 1173,6974 667,4529 118,6007 118,0016 - - - - -
Note: Divergence in price relative to the portfolios is due to accruals divergence as of 30.06.2014. * Calculated variable management fee as of 30.06.14: pursuant to the regulations, the definitive statement shall take place as of 31.12.2014 based on value developments during the rest of the year. A charge of the variable management fee for SKAGEN Vekst may solely be made if the unit value as at December 31st exceeds the unit value at the previous charge/settlement of the variable management fee (the high watermark). ** Figures in SEK 1000
1) Allocated between the respective Class SKAGEN SKAGEN SKAGEN SKAGEN SKAGEN unit classes Vekst Global Kon-Tiki m² Tellus 1H 2014 1H 2014 1H 2014 1H 2014 1H 2014 Mangement fee – fixed A 41 719 221 108 469 057 3 676 2 207 Mangement fee – variable A 50 427 - -334 203 - Total management fee A 92 146 221 108 468 723 3 879 2 207
Mangement fee – fixed B 7 3 182 13 440 1 - Mangement fee – variable B 17 548 2 742 -1 - Total management fee B 24 3 730 16 182 - -
Total fixed and variable All 92 170 224 838 484 906 3 879 2 207 management fee
1) Allocated between the respective Class SKAGEN SKAGEN SKAGEN SKAGEN m² SKAGEN unit classes Vekst Global Kon-Tiki 30.06.14 Tellus 30.06.14 30.06.14 30.06.14 30.06.14 Unit capital at par value A 492 057 3 771 069 7 138 551 446 832 583 521 Premium A -2 472 158 13 591 576 15 409 135 45 108 64 954 Total paid-in equity capital A -1 980 102 17 362 646 22 547 686 491 939 648 476
Unit capital at par value B 340 207 514 1 152 177 1 040 952 Premium B 5 398 2 107 348 6 188 440 163 134 Total paid-in equity capital B 5 738 2 314 862 7 340 617 1 204 1 087
Total paid-in equity capital All -1 974 364 19 677 507 29 888 303 493 143 649 562
SKAGEN FUNDS HALF YEAR REPORT | JULY 2014 43 Stavanger Head Office
London Branch
Amsterdam Branch
Home market, or under home market supervision International market Marketing permission
HEAD OFFICE UK OFFICE DUTCH OFFICE Editorial team: Parisa Lemaire, editor SKAGEN AS Albemarle House Museumplein 5 D Ole-Christian Tronstad Postbox 160, 1 Albemarle Street 1071 DJ Amsterdam Christian Jessen 4001 Stavanger, Norway London W1S 4HA The Netherlands Anna Marcus Skagen 3, Torgterrassen United Kingdom Tel.: +31 20 305 1500 Tel. +47 51 80 38 58 Tel. +44 207 408 2500 www.skagenfunds.nl Front page image: © peshkova - Fax +47 51 86 37 00 www.skagenfunds.co.uk Fotolia.com www. skagenfunds.com Registration number: FSA Firm No.: 52328686 Customer Services is open from Company reg. number: SKAGEN AS 469697 Monday to Friday from 9 am to 5 pm 867 462 732 Company No: FC029835 (CET). Please visit us at our office, UK establishment No: send an e-mail or call us and we will BR014818 do our best to help you.