Arctic Norwegian Value Creation Monthly Report December 2018
FUND COMMENTS Arc c Norwegian Value Crea on (Class B) fell by 6.8% in December, bringing 2018 return to ‐1.5%. Since incep on in August 2014, the fund has returned 54.6%, while the OSEFX market benchmark has given a return of 32.3%. Lerøy Seafood, Scatec Solar and Austevoll Seafood were the largest posi ve contributors to fund performance in 2018, returning 54%, 50% and 65% respec vely. Lerøy and Austevoll gained due to healthy demand for salmon combined with low supply growth. Furthermore, the sector has been subject to a significant mul ple expansion, partly due to defensive sector characteris cs. Lerøy improved its biological performance, while Austevoll benefi ed from increased Peruvian anchoveta quotas. The share price of Austevoll rose significantly more than what would be implied by its holding in Lerøy. Scatec has seen its capacity of assets in opera ons and under construc on more than double during 2018. At its Investor Day in May, Scatec announced ambi ous growth and profitability targets. In November, Equinor acquired 10% of Scatec fueling specula ons about a full takeover. XXL, Elkem and B2 Holding were the largest detractors last year. XXL benefited from a good winter, but spring and summer seasons were weak. Moreover, XXL delivered a profit warning for 4Q mainly due to lower gross margins in Norway. Campaign ac vity has been high, nega vely affec ng margins. Margins are further weakened by the ex‐ pansion in Austria, which will be loss making the first years. There have been several management changes, includ‐ ing resigna ons of two CEO’s. Transi on of sales from stores to online has increased uncertainty, although XXL is delivering strong online growth. A er Elkem’s strong share price run un l August following the IPO in March, the share has more than halved from its peak. As demand for silicones in China stalled in the autumn, prices plummet‐ ed. Moreover, demand for other products are affected by global growth, and prices for ferrosilicon and silicon met‐ al have eased. The share price of B2Holding declined as a very weak sen ment towards debt collector companies took its toll. The company’s reported results have been reasonably good, but debt collec ons have, however, been lower than expected. The largest posi ve contribu ons to fund performance in December came from Oslo Børs VPS Holding, Telenor and Gjensidige. Euronext announced its inten on to launch a NOK 145 cash bid for Oslo Børs VPS a er securing 50.6% support through 45.5% irrevocable pre‐acceptances and 5.1% ownership. Telenor and Gjensidige, with low financial leverage and defensive characteris cs, performed well in a turbulent market. The most nega ve contribu ons last month came from XXL, Transocean and Elkem. The la er two due to weak sen ment towards oil service and cycli‐ cals. Last year we added Elkem, Transcoean, Northern Drilling, Ocean Yield and Norsk Hydro to our por olio, while we exited Solstad Offshore, Austevoll, NEL, Saferoad and Ekornes, the la er two due to bid for the companies. At the end of December, the por olio was valued at 12.6 mes earnings (12m fwd) and 1.5 mes book value. Cor‐ responding figures for the Norwegian market were 13.2 and 1.8, respec vely. Oslo, January 2019 Sindre Sørbye Ole E. Dahl Tore Mengshoel Thomas Rasmussen Por olio Manager Por olio Manager Por olio Manager Analyst
ABOUT THE FUND Arc c Norwegian Value Crea on is research driven and truly index‐independent UCITS fund. The investment process focus on iden fying companies which are considered to be value‐crea ng over me at a reasonable price. The por olio is con‐ structed by bo om up stock picking. There are no constraints regarding sectors and the goal is to achieve the best possible long‐term risk‐adjusted return. The funds benchmark is Oslo Stock Exchange Mutual Fund Index (OSEFX).
15% 11.3 % 10.5 % 8.5 % 10% 6.6 % 5%
0%
‐5% ‐1.5 % ‐2.2 % ‐1.5 % ‐2.2 %
‐10% ‐6.8 % ‐7.3 % Month YTD 12m 36m p.a. 60m p.a. Incep. p.a. Arctic Norwegian Value Crea tion II Class B (25/8‐14) OSEFX FUND COMPOSITION END OF MONTH
Real Estate 0.6% 10 largest positions Energy 15.5% Kongsberg Gruppen ASA 5.5 % Europris ASA 3.6 % Industrials 10.5% Schibsted ASA 5.0 % Storebrand ASA 3.5 % Health Care 0.0% Telenor ASA 4.9 % Oslo Børs VPS Holding A 3.5 % Consumer Discretionary 4.3% Aker BP ASA 4.4 % Elkem ASA 3.4 % Materials 11.0% Yara International ASA 4.0 % Gjensidige Forsikring AS 3.4 % Information Technology 6.7% Financials 27.6% 5 largest overweights +/‐ 5 largest underweights +/‐ Consumer Staples 12.9% Kongsberg Gruppen 4.4 % Equinor ASA ‐8.9 % Telecommunication Services 5.0% Oslo Børs VPS Holding A 3.5 % Marine Harvest ‐7.4 % Utilities 2.0% Elkem ASA 3.4 % DNB ASA ‐5.9 % Europris ASA 3.2 % Telenor ‐4.9 % 0% 5% 10% 15% 20% 25% 30% Sbanken ASA 2.7 % Orkla ‐4.7 %
FUND PERFORMANCE AND RISK FIGURES —CLASS B NOK (FORMER CLASS A)
3 6 Since Month months months YTD 1 year 3 years launch Fund ‐6.8 % ‐13.8 % ‐9.9 % ‐1.5 % ‐1.5 % 38.0 % 54.6 % Benchmark ‐7.3 % ‐14.3 % ‐8.6 % ‐2.2 % ‐2.2 % 27.6 % 32.3 % Difference 0.5 % 0.5 % ‐1.3 % 0.7 % 0.7 % 10.4 % 22.4 % Vinx Nordic Net, NOK ‐2.7 % ‐8.4 % ‐3.8 % ‐5.9 % ‐5.9 % 8.0 % 46.6 % Euro Stoxx 600, EUR ‐5.5 % ‐11.6 % ‐10.5 % ‐10.8 % ‐10.8 % 0.4 % 11.2 % S&P 500 TR, USD ‐9.0 % ‐13.5 % ‐6.9 % ‐4.4 % ‐4.4 % 30.4 % 37.2 % MSCI AC World, LC ‐7.3 % ‐12.5 % ‐8.4 % ‐7.7 % ‐7.7 % 20.6 % 24.1 %
5 top contribut. Fund Fund Contri‐ 5 bottom contribut. Fund Fund Contri‐ year to date weight return bution year to date weight return bution Leroy Seafood Group 3.3 % 54.0 % 1.48 % Xxl Asa 3.5 % ‐68.5 % ‐3.54 % Austevoll Seafood As 1.0 % 66.0 % 1.26 % B2 Holding Asa 1.7 % ‐40.2 % ‐1.01 % Scatec Solar Asa 3.3 % 49.9 % 1.18 % Elkem As 3.2 % ‐20.2 % ‐1.01 % Tomra Systems Asa 2.6 % 50.5 % 1.05 % Europris Asa 3.2 % ‐26.3 % ‐0.83 % Oslo Bors Vps Holdin 2.4 % 30.6 % 0.86 % Transocean Ltd 1.6 % ‐36.9 % ‐0.66 %
Standard Sharpe Tracking Information Portfolio characteristics Deviation Ratio Error Ratio Arctic Norwegian Value Creation 11.4 % 1.0 4.2 % 0.7 Benchmark 11.1 % 0.7 *) Based on 36 months performance Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2018 ‐0.75 % ‐0.84 % ‐0.69 % 6.85 % 4.70 % ‐0.03 % 0.80 % 2.02 % 1.70 % ‐7.32 % ‐0.19 % ‐6.84 % ‐1.47 % 2017 1.70 % 0.29 % ‐2.35 % 4.19 % 0.70 % ‐0.07 % 3.81 % ‐0.48 % 4.53 % 3.17 % ‐2.03 % 3.09 % 17.51 % 2016 ‐7.33 % 2.60 % 2.10 % 4.08 % 3.70 % ‐3.14 % 3.81 % 1.29 % 1.71 % 3.60 % 1.99 % 3.96 % 19.23 % 2015 4.66 % ‐1.15 % 1.42 % 3.48 % 0.13 % ‐2.25 % 1.62 % ‐5.13 % ‐1.22 % 3.68 % 4.05 % ‐0.76 % 8.34 % 2014 0.44 % 0.28 % ‐0.88 % 1.49 % 2.05 % 3.39 %
Disclaimer: Historical returns are no guarantee for future returns. Future 100.0 % returns will depend, inter alia, on market developments, the fund man‐ ager’s skill, the fund’s risk profile and subscrip on and management fees. 80.0 % The return may become nega ve as a result of nega ve price develop‐
60.0 % ments. Arc c Fund Management AS seeks to the best of its ability to ensure that all informa on given in this report is correct, however, makes reserva‐ 40.0 % ons regarding possible errors and omissions. Statements in the report reflect the por olio managers’ viewpoint at a given me, and this view‐ 20.0 % point may be changed without no ce. The report should not be perceived as an offer or recommenda on to buy or sell financial instruments. Arc c 0.0 % Fund Management AS does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. ‐20.0 % Employees of Arc c Fund Management AS may be owners of securi es 08/14 01/15 06/15 11/15 04/16 09/16 02/17 07/17 12/17 05/18 10/18 issued by companies that are either referred to in this rapport or are part of Arctic Norwegian Value Creation Class B (Start 22.08.14) OSEFX the fund's por olio.