After a strong start to the year, equity markets have been in disarray with investor confidence and capital flows both reversing in recent weeks. The ‘Trump Trade’, which propelled the MSCI All Country World Index to a record high in February, has since unravelled on fears that tariffs will stifle economic growth and reignite inflation, particularly in the US where the S&P 500 index has fallen around 5% in the four months to the end of April[1].
Against this uncertain backdrop – the VIX index of market volatility climbed to its highest level in April since the pandemic – SKAGEN Global has held up well. The fund is down around 5% in EUR year-to-date, roughly 5% ahead of the MSCI All Country World Index[2] with strong relative returns driven by its financials holdings. The top contributor during the first quarter was Munich Re (4.2% of assets) with the world’s largest reinsurer increasing dividends and share buybacks following better-than-expected results. Second was Canadian exchange operator, TMX Group (5.4% of NAV), which has also delivered solid results with strong revenue growth across all areas of the business, followed by insurance broker Brown & Brown (2.1% of assets), which had another strong quarter and continues to expand its business lines and geographic reach.
“All three holdings have had a good start to the year. We’ve scaled down Brown & Brown on the back of its strong share price performance but the other two remain top ten positions with upside of between 20-33% over the next 2-3 years based on our target prices,” explains Lead Portfolio Manager Knut Gezelius, “Their strength has offset the weakness in two of our big US tech holdings, Alphabet (Google) and Amazon, which have produced solid underlying performance but have been sold-off alongside other members of the Magnificent Seven as a result of profit-taking and capital leaving the US in the wake of recent political turmoil sparked by ‘Liberation Day’.”
Competitive edge
Trump’s subsequent decision to suspend ‘reciprocal tariffs’ for 90 days set off a relief rally across global stock markets – the MSCI All Country World Index has climbed over 12%[3] – and Gezelius believes that trade wars are unlikely long-term: “The Republicans won the election’s seven swing states by promising to bring down the cost of living and Trump’s inflationary tariff policy threatens their slim majority in the House of Representatives at next year’s mid-term elections. This would make fulfilling his political agenda difficult and so we expect Trump to dial down the tariff rhetoric and shift towards lowering taxes and deregulation to boost the economy.”
US companies currently make up around 57% of SKAGEN Global’s portfolio – less than their 65% benchmark weighting – and most operate globally with significant overseas operations. Two of the fund's largest holdings, Microsoft and Mastercard, generate 50-60% of revenues from non-US markets, for example, which means that they may well hold up better than other US companies in a worst-case recession scenario. Gezelius adds that picking stocks with a clear competitive edge that benefits customers and employees is also valuable: “Waste Management, Canadian Pacific and Intercontinental Exchange may not operate in the most exciting industries, but they have valuable assets or market positions that enable them to pass on rising costs and maintain margins, which is key for shareholder value creation.”
This competitive advantage is reflected in the portfolio’s return on equity and EBIT margin being superior to the global index. The fund also contains companies with stronger balance sheets than the benchmark average based on net debt / EBITDA and interest coverage ratios, which provides comfort should the economy deteriorate or interest rates rise to combat higher inflation.
The portfolio is also relatively stable with no positions exited during the first quarter and only Waste Management, North America’s largest refuge collection and landfill provider, entering the fund. “It has previously been in the portfolio but unlike before we now expect WM to be able to make bolt-on acquisitions under a Republican administration,” Gezelius explains, “The company has successfully integrated last year’s $7.2 billion acquisition of Stericycle, which bodes well for the business going forward.” Indeed, Waste Management recently indicated that its pipeline of potential tuck-in acquisitions in its core business is looking very promising for 2025 and beyond. The company also revealed that it earns an operating margin of 0% or less on as much as 25% of its residential customer base – mispricing that provides a substantial opportunity to drive further margin expansion in the coming years.
Attractive upside
Despite the current uncertainty around global trade and geopolitical tensions, Gezelius believes that investors who can ride short-term fluctuations and look beyond the noise will be rewarded: “During periods of market turmoil like we are experiencing at the moment, it is useful to remember that the global equity market has overcome many previous crises and continued to trend upwards, albeit with a few dips along the way.”
Over the next two-to-three-years, SKAGEN Global has over 40% potential upside based on current target prices. “The portfolio contains around 30 carefully selected companies which are diversified but share characteristics of having global exposure, being well run and well capitalised,” Gezelius concludes, “We have confidence that the fund is resilient, and our holdings can deliver attractive returns across a range of complex macro scenarios.”
You can watch a recording of the SKAGEN Global webinar with Knut Gezelius here: Market update with SKAGEN Global
Read the fund’s Q1 2025 report here
NB: All figures as at 31/03/2025 unless otherwise stated.
[1] As at 30/04/2025.
[2] As at 30/04/2025, net of fees.
[3] 08/04/2025 – 30/04/2025 in USD.