COVER STORY 5
„ Our approach targets companies with
steady earnings and robust balance sheets, which act as stabilisers during periods of heightened volatility. Claus Vorm portfolio manager at Nordea Asset Management
These companies often grow at higher rates than typical stocks within the universe – but are still relatively stable, less cyclical and currently trade at attractive valuations.” Solid fundamentals provide stability Robert Næss, who manages the portfolio alongside Vorm, says stability is an underrated quality in the current environment. “Looking at today’s investment backdrop, investors will need to identify solutions able to offer protection against a wide spectrum of economic and market scenarios,” Næss says. “In our view, investors must meet fundamental challenges with fundamental investing. The most successful companies for the remainder of the year and beyond are likely to be those able to withstand stubborn inflation, elevated interest rates and continued eco- nomic weakness.” The investment process employed by Vorm and Næss on the Nordea 1 – Global Stable Equity Fund takes a deep view of the fundamentals, with the team analysing the development of a company’s stock price, earnings, dividends, EBITDA and cash flow over prior years. Within the process, one key characteristic is prioritised above all: stability.
After navigating through turbulent and testing market conditions last year, investors entered 2023 with hopes of a more benign backdrop . But far from calm, the early part of 2023 has been charac- terised by frequent bouts of volatility and fear. While much of the market’s recent instability surrounded sharp swings in inflation and interest rate expecta- tions, concerns over the health of a number of global banking institutions created additional uncertainty. With heightened market volatility tipped to persist, it is understandable if investors are more risk averse for the foreseeable future. As long-term investors still need exposure to equity markets, stocks exhibiting robust characteristics are likely to be in increasing demand. In 2005, the Multi Assets Team at Nordea Asset Management (NAM) created the concept of “stable equities”, which are stocks typically less economically sensitive than the broader market. These businesses usually produce products or offer services largely essential to everyday consumption. “Stable equities are often perceived as ‘boring’, which means the stocks attract less attention from the market and the broader public,” Claus Vorm, portfolio manager of the Nordea 1 – Global Stable Equity Fund , explains. More attention is given to ‘hot’ stocks with interest- ing narratives, typically companies operating in areas of new technology. “As a result of being out of the limelight, the pricing of stable stocks does not neces- sarily reflect a rational weighting of expected returns relative to risk,” Vorm explains. In addition to this, as Vorm points out, there are many companies that deserve the label “stable”, but not “boring”: “In fact, a number of high-profile names within communications services and IT have stable qualities – such as tech giant Alphabet. 1
“Our approach actively targets companies with steady earnings and robust balance sheets, which
At a glance ` Stable equities may be perceived as “boring”, but stability is an underrated quality in the current environment ` The managers actively target companies with steady earnings and robust balance sheets, which act as stabilisers during periods of heightened volatility ` Higher-quality companies possess the ability to protect margins – even in an inflationary environment
1 Reference to companies or other investments mentioned should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration.
ISSUE 01.2023
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