Olsen not worried by wobble

Tom Stubbe Olsen, one of Continental Europe’s best performing fund managers and head of the ?7.4bn Luxembourg-based value boutique within the Scandinavian growth-oriented firm, is starting to fall behind the market. Latest 12-month figures show the MSCI Europe index nudging ahead of his flagship ?2.8bn Nordea European value fund, which he oversees in a suite of products also including Far Eastern, Japanese, global and North American equities. “Last year was the first year when we lagged the market a little,” admits Mr Olsen. But this was not due to an old fashioned investment process – something he shook up after the joining the company back in the 1990s – but rather to market conditions which, until recently, did not suit his style of investing. Due to a lack of suitable opportunities, he was forced to run a 20 per cent cash allocation across his portfolios during the entire equity market rise of 2005. “Also, we did not have investments in resources or energy; no oil stocks, and just a few oil services,” he says. “The reason we have very little in those areas, is that we do not believe these types of stocks fill our investment criteria, plus we have no utilities, so we are absent from three main performing sectors, in addition to our strong cash position. At 16.3 per cent over 12 months, the fact that the fund is still well above the mean and trailing the benchmark by less than 1.6 per cent, despite the above mentioned restrictions, is in fact testament to the excellent performance of the invested portfolio. Over a five-year period, there are no such problems, with the fund clearing 54 per cent against a 7 per cent sector average. This explains why Mr Olsen’s funds are so popular among Europe’s distributors, and are regularly chosen by members of the PWM fund selection panel. In fact, he took over the European fund in 1998, after it had been running for five years. It had been created to satisfy demand from private banking customers. He soon changed the approach from deep value to economic value, focusing on companies’ long-term ability to achieve cashflows. “I started to work with the concept of earnings power at Nordea in the Far Eastern value fund, and started to have pretty OK results,” remembers Mr Olsen. “This was against the background of a tough environment, and I was asked if I would like to take over the European value fund, and implement the same investment approach I had introduced in Asia.” The new approach boosted the European fund’s performance, says Mr Olsen. “In my opinion, in the portfolio, there were too many stocks which were not profitable enough, so why should they be so expensive? I started to change some of the names in the portfolio, and this coincided with opportunities in the market environment where we could find pretty interesting things.” Getting rid of holdings such as German pottery, china and sanitary wear manufacturer Villeroy and Boch – a company which had “all the things wrong with it that I can think of” – started to have an effect on the portfolio sooner than Mr Olsen had dared to hope for. Then he bought Dutch electronics group Philips, which was just starting to embark on a restructuring process still apparent today. He also acquired stocks in Finnish brewer and soft drinks manufacturer Hartwell, just as the Russian currency crisis began to set in. Mr Olsen’s homework saw to it that he acquired shares in Hartwell’s lucrative Russian operation as part of the purchase.

Under the current investment process, Nordea’s value fund holds stocks for the time it takes to close the valuation gap between current share price and fair value. He is prepared to stay with a company for up to five years. The European portfolio holds 56 stocks, and the holdings are fairly stable. He really started to notice the interest of external private banks in his approach in around 2001, when clients approached by Nordea’s fund distribution machine could be convinced that a three-year plus track record was on the table. “That really accelerated the inflow into the fund,” he remembers. Nordea Value Management is allowed to operate independently in Luxembourg, well away from the managers who run the rest of the group’s e153bn in assets. “We have a good understanding that what we are doing in Luxembourg is different from the main programme in Copenhagen,” says Mr Olsen. “One can be tempted to attempt the growth of empire. But you should leave these kind off things alone and let them develop and not try to abuse success. We are lucky in Nordea that we have this type of environment.”

Olsen: chopped non-profitable stocks