Avoiding the fish farmers was a winning bet for Norway’s top performing fund last year.
That allowed the Nordea Norge Pluss fund to deliver a 25 percent return in 2017, which was the highest among Norwegian stock funds, according to Morningstar.
“The earnings estimates are too high,” portfolio manager Jon Hille-Walle said by phone on Wednesday. “We’ve been cautious to the whole sector and underweight.”
Fish farmers had a stellar 2016, with the Oslo Seafood Index surging 56 percent, before struggling in 2017 with a 4.8 percent decline. The industry is facing challenges to higher production from lice and diseases such as salmon anemia as it adjusts to increasing demand for fish.
Marine Harvest ASA was 0.1 percent higher in Oslo trading as of 9:12 a.m. local time. Leroy Seafood Group ASA gained 0.6 percent.
“It’s extremely difficult to grow for the fish farmers,” he said. “It’s asymmetric. There’s almost always downside. Things can go wrong but the fish don’t suddenly grow faster. And on the cost side it’s going in the wrong direction.”
While the fund moved to underweight oil producers in 2017, it increased to overweight for oil service companies. It holds Subsea 7 SA, Borr Drilling Ltd. and Odfjell Drilling Ltd. but shuns Norway’s largest oil company, Statoil ASA.
“We choose companies that have a strong balance sheet, order backlogs and positive earnings through the whole cycle,” he said. “The companies we hold are special companies with unique assets or with defensive qualities.”
The Bergen, Norway-based equity team, which manages about 18 billion kroner ($2.2 billion), scores stocks on valuation, earnings trend, value creation and sentiment with most weight on valuation. The biggest of its more than 60 holdings are IT infrastructure service provider Atea ASA and fertilizer maker Yara International ASA.
“We’re a big team so we have the time to cover a lot of companies and can therefore have many small holdings,” he said. “Over time there’s alpha also in these small bets. So it would be stupid to not include them.”
The six-man team includes five sector specialists. Hille-Walle covers the oil sector and shipping. He sees $55 to $65 a barrel as a reasonable range for Brent crude.
“The short-end of the curve is very much affected by geopolitics,” he said. “There’s a lot of geopolitical risk priced in. The normal is that it will gradually subside. There will be a very significant production growth from U.S. onshore now.”