With our company name Nordea deriving from the words Nordic and idea, foremost in our minds is the d...
With our company name Nordea deriving from the words Nordic and idea, foremost in our minds is the desire to translate this concept into innovative thinking on the best and safest ways to invest and manage our clients' assets.
The Nordic region has long been the home of individuals, entrepreneurs and organisations who dare to forge new paths. This pioneering spirit is embodied in the name Nordea.
And this is what is embodied in our investment practices, whether this means managing your individual portfolio or investing in funds.
Nordea is the leading financial services group in the Nordic and Baltic region and among the top 20 banks in Europe. It has 30,000 employees, 11 million customers, E262bn in total assets and E113bn in assets under management.
Nordea's asset management arm is Asset Management & Life, which comprises one of the Group's three business areas (the other two being Retail Banking and Corporate and Institutional Banking).
Nordic identity - European reach
Forming a part of Nordea Asset Management & Life is International Wealth Management & Funds with operations based in Luxembourg and Switzerland. Its main fund distributor is Nordea Investment Funds SA with operations across Europe.
Since the creation of the Nordea Group in 2000, this has provided us with a brand name and a market capitalisation sufficient to gain access to the European third-party fund market as a provider.
In addition to being the leading Nordic asset manager, we now rank among the major European and US asset managers active in the European third-party fund market. If we take 2003 as an example, Nordea was ranked fifth in Europe in terms of net capital inflows (source: FERI Fund Market Information).
Nordea 1, SICAV - European passport
Nordea 1, SICAV is a Luxembourg- registered investment fund originating in 1989. The fund applies the well-established Ucits I European standard for investment funds, setting out firm guidelines for the structure and investment policy of funds such as these and effectively empowering them with a European passport for distribution across borders.
Nordea 1 covers the three main asset classes: equities, bonds and currency-denominated reserve funds with a wide range of individual sub-funds to choose from. The fund distinguishes itself through its positioning for global asset allocation with a strong presence in all the major world markets.
It offers a select range of investment funds that are indispensable for any investor portfolio. These number five funds managed according to the Nordea Value investment style; 12 equity funds applying the Thematic Investment Process (TIP) style; 10 bond funds run along country, currency or regional lines; and five currency-based reserve funds.
Nordea 1, its sub-funds and promoter Nordea Investment Funds have won a total of 51 fund-related awards in the past five years. These include one best management group award; four best equity group awards; 32 equity awards in five countries including six pan-European awards; nine fixed income awards; two reserve fund awards and three client service awards.
In the application of proven investment processes to these asset classes, Nordea 1 also offers in a single menu a choice of successful investment styles that are competitive and internationally recognised. These include the Nordea Value Management and Thematic Investment Process (TIP) styles.
Nordea Value Management
Nordea Value Management has provided fund management for the Nordea 1 value funds since 1989. Value investing has been a mainstay of the fund management since 1991, with five funds focused on value investing managed out of Luxembourg. Starting out as 'deep value' investors, Nordea Value adapted the investment style somewhat in the years between 1996 and 1998.
The main idea in the present approach is that of seeking out companies with strong earnings potential at fair prices. Nordea Value seeks out business value; and its core business ethos is 'value equity management'. The foundation of its performance is a comprehensive and highly disciplined investment strategy that capitalises on expertise in identifying a company's hidden or undiscovered value through intensive, proprietary research. This strategy derives from a value-oriented investment approach that is grounded in focus and consistency.
To invest in a structured and effective way, the majority of investment ideas must be self-generated. This is done through screening a set of qualitative factors against price. The model is designed to provide pointers to companies that appear undervalued in good business conditions with healthy prospects. These companies form the platform for analysis.
The geographical business areas are mainly Europe, Far East, Japan and North America. The business objective is primarily to find, and to capture for the clients, undiscovered value that is as yet unrecognised in a company's stock price, based on a defined value approach. Expanding the business is based on profitability rather than growth.
How does value work?
A value-oriented fund manager invests in companies which, in their view, are undervalued. The equity price of a company is compared with the estimated value. If the price is considerably below the estimated value, the equity is purchased in the hope that both values will move closer together. Value investors believe that, while the equities they choose may not currently be arousing interest among the broader public, it is only a question of time before the equity market discovers them, leading to a rising equity price.
If, after a certain time, the equity reaches the value estimated by the fund manager, the latter sells the equities and realises their profit, irrespective of whether further profits are anticipated. Therefore, this investment approach requires management which is both active - performance must be constantly monitored - and disciplined.
In contrast to value investing is the growth-oriented investment strategy. Advocates of the growth strategy take the view that long-term stock market success is possible only if one relies on a sector's 'giants', who have proven themselves in the market over many years, who operate profitably and who have an unassailable lead over their competitors.
Unlike the growth investor, the value investor looks very carefully at the price at which he buys an equity, which makes value investments correspondingly lower-risk. In periods when the entire market is going down, it is logically impossible for undervalued equities to fall as far as overvalued equities, so that they offer greater security in the event of price falls.
Seeking out real value
Value investing means not being oriented to any reference index but focusing on individual equities and identifying companies with a high intrinsic value. But how can this intrinsic value be measured? What criteria are required to assess how companies compare with one another?
The basis for this is the so-called 'free cash flow', which the fund manager understands as the sum of money remaining once all requisite and expedient investments have been made in order to keep a company competitive. It is, therefore, the amount which is actually free disposable. As a rule, analysts calculate this free cash flow according to specific rules.
Besides a favourable price and intrinsic-value assessment, positive income prospects represent a further key decision-making criterion. For a fund manager to be clearly one step ahead of the rest, he must not shy away from making personal visits to those individual companies he has selected in advance and gaining an impression in situ.
In the financial markets, too, appearances can be deceptive. By taking a closer look, one is able to better assess whether the price of an equity actually reflects its value. Thus, value investing is extremely attractive for investors with a long-term investment horizon.
Thematic Investment Process (TIP)
Another investment style found under the roof of Nordea 1, SICAV is the thematic investment process (TIP). This is an investment concept applied to equities by Nordea Investment Management in Copenhagen. The main objective is to add value to clients through superior investment performance, innovative products and high-level client service.
The portfolios are broadly diversified across countries, sectors and themes. In this way, Nordea is able to capitalise on observable structural changes and consistently deliver risk-adjusted outperformance relative to any benchmark.
The TIP is based on an approach under which research and stock selection are not limited to a sector, country or individual market developments. Themes are used as a filter for the stock selection.
The TIP captures what Nordea believes are the major structural changes that the world is undergoing, be it rapid development in technology, the dramatic shifts in demographics or the globalisation of markets. With more than 10 years' experience in using the themes in the investment process and successfully so, Nordea has a leading edge over competitors.
With European and international equities among its core products, the TIP stands to benefit rather than lose from the trend towards increased internationalisation of equity portfolios. Together with the Nordea Value Management process, the TIP forms part of a compelling combination of investment styles.
Nordea Investment Management also applies an internationally recognised investment process for fixed income. Fixed income investment decisions are based on understanding structural changes. The structural changes have three headlines: globalisation, new paradigms and demographic changes. The structural trends and the changing market structure are reflected in the investment philosophy, which can be summarised as follows:
All investments are based on a global macro scenario. The investment philosophy reflects a global approach to pricing with exposure/risk being priced in a global context. This involves relating all bets to the global macro scenario and pricing each exposure element relative to similar risks in other markets.
Value is added to client mandates on a risk-adjusted basis as a result of the global macro-economic scenario, the ability to exploit pricing differences and the risk management in the construction of portfolios.
Value Fund Snapshots
Nordea 1 - European Value Fund
Many European companies are intent on delivering better results to shareholders and becoming more competitive in the global marketplace. The key is to identify hidden value in companies that are overlooked by European stockmarkets in terms of their unrecognised earnings power. Since our value investment style was adopted, the fund has produced consistently strong returns, outperforming across a range of market conditions. The team's consistency of approach and disciplined use of screening and external company data have contributed to this success.
Fund manager Tom Stubbe Olsen and co-fund manager Léon Kirch have achieved consistent performance success through strict adherence to a disciplined four-part investment process. A multi-factor screen is employed to reduce the large universe of potential holdings to a manageable level for detailed balance sheet analysis and face-to-face company interviews. Key factors in determining each company's long-term value include discretionary cashflow, management strength and industry franchise.
Tom Stubbe Olsen was born in Frederiksberg, Denmark, in 1962. He studied at the Copenhagen Business School, graduating with a Masters degree in economics and business sdministration in 1992. He has worked with investments since 1986, when he joined Sparinvest, the largest mutual fund in Denmark. Entering the field of analysis, he worked as junior portfolio manager on the American and European markets for four years until taking charge of ID-Sparinvest's Pacific fund in 1991. He joined Unibank Luxembourg in 1993 to start up Nordea 1 - Far Eastern Value Fund, having since November 1998 been fund manager for the Nordea 1 - European Value Fund. He was appointed investment director in the newly formed unit of Nordea Value Management in 2002.
Léon Kirch was born in Luxembourg in 1972. He studied at the École de Commerce Solvay and the Université Libre de Bruxelles, graduating with a Masters degree in sciences management in 1996. Following a five-year stint in the asset management department of Banque de Luxembourg, where his main functions included managing in-house investment funds and buy-side analysis, he attained Holder of the Chartered Financial Analyst status in 1996. He joined Nordea 1 - European Value Fund as co-fund manager in 2002.
Nordea 1 - Far Eastern Value Fund
Asia is in the throes of repositioning itself within the global economy. Restructuring presents great investment opportunities within the region. As this process is invariably uneven, the Nordea value approach seeks out hidden investment opportunities regardless of country or sector allocation.
Capitalising on a deep-rooted knowledge of South East Asian companies, fund manager Jacqueline Chen uses an absolute return approach to managing the portfolio, paying minimal attention to reference indices. A multi-factor screening reduces the large universe of companies to a manageable level. Company visits are then undertaken, as a careful assessment of business strategies is the core of the process. Preferred companies have clear five-year visibility, strong cash flow generation and unexpected earnings potential.
Jacqueline Chen was born in Malaysia and studied in London, England, where she achieved her Master of Business Administration and later a Master of Science at the London School of Economics. She has been managing Far East investments since 1984, when she returned to Malaysia to join Rothschild Malaysia's Buniputra Merchant Bankers. In 1989, she left to join World Invest in London to start up the Far East division. In the nine years she spent at World Invest, she managed and grew Far East investments from an initial figure of around US$100mn to a peak of US$800mn, comprising pension and retail funds. Performance rankings over the period have typically been first or second quartile. She was appointed fund manager of the Nordea 1 - Far Eastern Value Fund in 1999.
Nordea 1 - Global Value Fund
The fund is an ideal core investment for any portfolio seeking to gain longer-term capital growth from investing in undervalued companies globally. It also offers investors a chance to benefit from Nordea's successful value investment approach, which has provided consistently superior returns over time.
The Global Value Fund invests at least two-thirds of its net assets in equities and other transferable securities issued by companies which are domiciled in Europe, North America and the Far East including Japan. The fund is invested according to a value-oriented approach, which is based on the earning power and the financial strength of the companies. Investment opportunities are identified through the proprietary and independent research of individual companies.
Managing the Global Value Fund is the Nordea value management team. Members of the team include Jacqueline Chen, Paul Danes, Tom Stubbe Olsen and Gregg Powers. (For background details of the team members, please see under the respective Nordea value funds they manage.)
Nordea 1 - Japanese Value Fund
For the first time in modern Japanese corporate history, fundamental structural change enables us to apply the internationally acclaimed Nordea value investment approach to undervalued companies in Japan. The fund creates investment opportunities by unlocking hidden value.
Fund manager Paul Danes employs a four-step process for selecting eligible Japanese companies for his portfolio. This includes: a broad screening for unrecognised value; confirmation using discretionary cashflow as a key indicator of financial health; company interview; buying significant long-term positions. The investment style is highly stock specific with little concern for index positioning. Risk is controlled primarily through diversification and exhaustive company research.
Managing the Japanese Value Fund is Paul Danes. After graduating from Cambridge University with an MA in economics specialising in economic theory, he joined Morgan Grenfell in 1993 where he worked in London as a Japanese equity analyst contributing to Europe Australasia and Far East (EAFE) portfolios for North American clients. In 1995, Paul transferred to Morgan Grenfell Tokyo, where he worked as a fund manager in the Japan small-cap team, making over 400 company visits during his time there. After three years in Tokyo, he transferred to Morgan Grenfell in New York where the focus was on EAFE markets and acting as liaison for clients. After a brief stay in London as a fund manager of pooled funds, Paul returned to Tokyo in 2000. Here he managed a range of small and mid-cap funds, using a research and valuation-based investment style. Paul joined Nordea in August 2003 to run the Nordea 1 - Japanese Value Fund.
Nordea 1 - North American Value Fund
North American companies continue to focus on shareholder returns and leveraging their competitiveness in the global marketplace. The key is to identify hidden value in companies that are overlooked by North American stockmarkets in terms of their unrecognised earnings power. The obvious appeal of this fund is its ability to produce consistently strong performance irrespective of market conditions. Our fund managers focus on identifying profitable, transparent companies that are fundamentally attractive but out of favour and therefore undervalued by the North American stock markets.
Fund managers Gregg Powers and Bruce Sherman apply a rigorous approach to stock selection, which is the key to the fund's consistency of performance. The stock selection process includes fundamental free cash flow analysis with the set goal of preserving capital and growing it over extended periods of time. The key drivers of performance are proprietary research and superior stock selection. The focus is on measuring long-term company performance and conservative portfolio building.
Gregg J Powers was born in 1963, obtaining a Bachelor of Science in finance from the University of Florida. Beginning his career in Raymond James Financial, where he developed the company's computer-based asset allocation model, he spent much of the 1990s working for Private Capital Management (PCM) Inc as fund manager. In 1999, he was appointed president of the company, which advises the fund and is based in Florida. Active in asset management since 1987, the company is acclaimed as a very successful value investor.
Bruce S Sherman, who has served as chief executive officer and chief investment officer of PCM since its creation in 1986, earned a Bachelor of Science degree in Accounting from the University of Rhode Island and a Master of Business Administration in Finance from Bernhard Baruch College. Working as a principal with accounting firm Arthur Young & Co in New York City from 1969 to 1979, Sherman is a certified public accountant and holds the Series 7, 24 and 65 securities licences.
Paul Bruns and Elaine Parkes
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