SKAGEN Global

Opportunities in Global MarketsJanuary 2020

2

Source: blog.usejournal.com

Sisyphus

3

2010 – 2019

Let's review the past 10 years

4

TBD

2010. Greece debt crisis

Source: fearlessprediction.blogspot.com

5

2011. US loses AAA credit-rating

Source: CBS News

6

Source: positivemoney.edu

2012. Eurozone breakup crisis

7

2013. The Fragile Five

Source: cnbc.com, The Civil Joint

8

2014. Oil price collapse

Source: priceofoil.org

9

2015. China stock market crash

Source: fifthperson.com

10

2016. Donald Trump elected

Source: cnn.com

11

2017. Euphoria

Source: marketwatch.comNote: MSCI AC World +25% TSR (USD) in 2017 (Bloomberg)

12

2018. Nasdaq falls 20% in Q4

Source: www.reuters.com

13

Source: washingtonpost.com

2019. Recession fears

14

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total Return (%)

USD DKK NOK SEK

Global equities 10-yr total return

Source: Bloomberg, SKAGEN

146%

215%221%

273%

MSCI AC World (2010 - 2019)

15

2020 – 2029Source: aljanh.net

Navigating the next 10 years

16

1. Intangible assets

2. Index mis-classifications

3. ESG transitions

Opportunity for active investors

Areas where active managers can thrive among passive competitors

17

Source: Morningstar as at 31 Oct 2019, SKAGEN

Passive larger than active (US)

0 %

25 %

50 %

75 %

100 %

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

US Equity Fund Assets: % in Active vs. Passive*

Passive Active

US active equity funds AUM = 4.34 trillion

(49.3%)

(50.7%)

US passive equity funds AUM = 4.46 trillion

* SKAGEN best estimate from Morningstar graphs

50%

18

SKAGEN Global

Intangible Assets

19

Source: Ocean Tomo, muawia.com, networkworld.com

2. Capex going digital, not physical (“E” in P/E )

1. Intangible assets becoming main source of value creation (“B” in P/B less relevant)

3. Market efficiency to identify broken business models rapidly accelerating

Tomorrow's value investing will likely require more dynamic thinking

Traditional multiples obsolete?

20

Intangible Assets

Network effects

Brand equity

R&D

Sanctioned oligopoly

Patents

Culture

Intangibles to shape the 2020s

21

The rise of intangible assets

4%

6%

8%

10%

12%

14%

16%

Investment in Intangible Assets vs. Tangible Assets(US private sector investments by type relative to gross value added)

Tangible investment rate Intangible investment rateSource: Carol Corrado, Charles Hulten, and Daniel Sichel, Lev & Gu (2016), Man Institute, SKAGEN

22

Annual spend on brand building: €7 bn

Intangible assets on B/S: €7 bn*Total R&D spend over 10 years: $3.5 bn

Intangible assets on B/S: $1.5 bn*

Total R&D spend over 10 years: $99 bn

Intangible assets on B/S: $1.5 bn* Intangible assets on B/S: $3 bn*Total R&D spend over 20 years: $60+ bn

Source: Bloomberg, company 10k, marketingweek.com

* = ex-goodwill for FY2018 or most recently completed accounting period

Accounting not reflecting reality

23

Source: nike.com, interbrand.com, Bloomberg as per 2019 H1

Accounting Value(2019 Annual Report)

Interbrand’s Value(2019 Best Global Brands Report)

$283 million? $32 billion?Market cap: ~$130 billion

Forward P/B: 12.8x(2019 H1)

Case study: NIKE

24

2019200919991990**

1.2.

3.

4.

5.

6.

7.

8.

9.

10.

1.2.

3.

4.

5.

6.

7.

8.

9.

10.

1.2.

3.

4.

5.

6.

7.

8.

9.

10.

1.2.

3.

4.

5.

6.

7.

8.

9.

10.* Measured by market cap (USD) in MSCI AC World as per November each calendar year** S&P 500 Source: Bloomberg

10 largest global public firms*

2029

1.2.

3.

4.

5.

6.

7.

8.

9.

10.

?

25

This trend looks set to continue

0 %

20 %

40 %

60 %

80 %

100 %

1980 1985 1990 1995 2000 2005 2010 2015

Distribution of R&D Spend by Sector in the US(1980-2015)

Source: Credit Suisse, SKAGEN

Telecom

Information Technology

Healthcare

Consumer StaplesConsumer DiscretionaryIndustrialsMaterialsEnergy

26

SKAGEN Global

Index mis-classifications

Sou

rce:

cla

ssia

rius.

net

27

S&P 500 index: then vs. now1957 1976 2001 2016 2019

28

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

5

10

85

Rails

Utilities

Industrials

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

1957(% index weight)

1976(% index weight)

2001(% index weight)

2016(% index weight)

2019(% index weight)

29

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

5

10

85

Rails

Utilities

Industrials

1957 1976 2001 2016 2019

30

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

5

10

85

Rails

Utilities

Industrials

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

1957(% index weight)

1976(% index weight)

2001(% index weight)

2016(% index weight)

2019(% index weight)

31

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

5

10

85

Rails

Utilities

Industrials

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

1957(% index weight)

1976(% index weight)

2001(% index weight)

2016(% index weight)

2019(% index weight)

32

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

5

10

85

Rails

Utilities

Industrials

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

1957(% index weight)

1976(% index weight)

2001(% index weight)

2016(% index weight)

2019(% index weight)

Real Estate

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

Real Estate

3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

33

Source: Siegel “The Long Term Returns on the Original S&P 500 Firms,” (with Jeremy Schwartz), Financial Analysts Journal, v. 61 (1), January/February 2006. pp. 18-31, WSJ (September 2016), Bloomberg, SKAGEN

S&P 500 index: then vs. now

5

10

85

Rails

Utilities

Industrials

2

6

7

86

Transporation

Financials

Utilities

Industrials

3

3

3

3

7

10

10

13

13

15

21

Telecom

Materials

Real Estate

Utilities

Energy

Industrials

ConsumerStaples

ConsumerDiscretionary

Financials

Health Care

InformationTechnology

1957(% index weight)

1976(% index weight)

2001(% index weight)

2016(% index weight)

2019(% index weight)

Real Estate

3

3

3

4

7

9

10

10

13

14

23

Materials

Real Estate

Utilities

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

CommunicationServices

Financials

Health Care

InformationTechnology

Real Estate

Telecom3

3

6

6

8

11

13

14

18

18

Materials

Utilities

Telecom

Energy

ConsumerStaples

Industrials

ConsumerDiscretionary

Health care

Financials

InformationTechnology

Telecom

CommunicationServices

34

Case studySector Distribution (%)

Source: SKAGEN as of 30 Sep 2019

6

5

11

11

9

11

17

16

9

4

3

0

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Information Technology

Communication Services

Utilities

Real Estate

Cash

MSCI AC World (Index)

35

Case studySector Distribution (%)

Source: SKAGEN as of 30 Sep 2019

0

0

14

9

8

8

34

19

5

1

0

2

6

5

11

11

9

11

17

16

9

4

3

0

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Information Technology

Communication Services

Utilities

Real Estate

Cash

SKAGEN Global MSCI AC World (Index)

Professional Services

Exchange Operators

Insurance brokerage / Risk management /

Consulting

Credit-Rating Agency

36

SKAGEN Global

ESG Transitions(ESG = Environmental, Social and Governance)

Sour

ce: h

ttp://

dani

elle

dupe

rret.c

om

37

Themes can be deceptive

-150%

-100%

-50%

%

50%

100%

150%10-Year Total Shareholder Return by Index Type ($)

(2010 - 2019)

MVIS Global Coal (TR Net) Index S&P Global Clean Energy Index MSCI AC WorldSource: Bloomberg, SKAGEN

0

+146%

–56%–35%

38

Source: marketwatch.com, SGS, electrochem.org,

A pragmatic view of "transition"Transition

3-pillar strategy for identifying ESG transition stories

TechnologyCompany Society

SKAGEN Global's view on "ESG transition"

39

Source: SKAGEN Global

We look for rare combinations

ESG Transition(tangible impact)

Business model & Fundamentals

(cash-generative)

Valuation(reasonable)

"Lollapalooza effect"(outcome far bigger than sum of the parts)

40

0

50

100

150

200

250

300

350

2006 2008 2010 2012 2014 2016 2018

Share price(USD)

IPO

0

100

200

300

400

500

600

700

800

2010 2012 2014 2016 2018 2020

Case study

~ 2,900% total return(trough-to-peak)

Share price(DKK)

~ 8,000% total return

Source: Bloomberg

41

SKAGEN Global

Why we remain long-term optimists

Sour

ce: 2

4kcr

eativ

e.co

m

42

*1995-2019 median valueSource: Bloomberg, SKAGEN

02468

1012141618

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

(%) MSCI AC World Free Cash Flow Yield(1995-2019)

Valuation looks reasonable

1.3%Pre-financial crisis

17.1% Financial crisis peak

4.6%

43

What return can be expected?

Source: von.gov.ng

44

r

FCF1 = distributable cash flowr = required returng = expected constant growth rate in FCF

We prefer the FCFY metric

Price0 FCF1=– g

+

return = FCF yield + growth in FCF

Note: Formula assumes constant growth in free cash flow and no change in absolute FCF yield over the time period

45

Range of annualized returns (base case)

FCF yield + growth in FCF = return

4.0% + 3.0% = 7%

4.6% + 4.5% = 9%

Note: Formula assumes constant growth in free cash flow and no change in absolute FCF yield over the time period | Fgures are approximate based on MSCI AC World data in Bloomberg between 1995-2019 unless otherwise noted | Figures for illustrative purpose only, not investment advice

SKAGEN Global's medium-term view

Range of annualized return in basecase scenario for medium term

MSCI AC World Annualized Return(2010-2019)

14.1% 12.2% 12.3% 9.4%Source: Bloomberg

46

– Charles H. Duell, Commissioner of the US Patent Office 1898-1901

Source: patentlyo.com, wikpedia.org

“Everything that can be invented has been invented”

“In my opinion, all previous advances in the various lines of invention will appear totally insignificant when compared with those which the present century will witness. I almost wish that I might live my life over again to see the wonders which are at the threshold”

47

Great achievements to continue

Source: NASA

The moon landing 50 years ago (1969)

48

…into the next decadeachievements to continue

Source: NASA

• Digitization

• Gene therapy

• Robotics

• Renewables

• Artificial intelligence

• Blockchain

• …

49

Source: NYU Stern School of Business

$1

$10

$100

$1 000

$10 000

$100 000

$1 000 000

1928 1940 1953 1966 1979 1992 2005 2018

S&P 500

The power of compounding

* Historical data on S&P 500, including treatment of dividends, may differ by data provider for time series dating back to 1928. Dividends included in the graph above.

$382,850

World War II

Energy Crisis

Great Depression

Black Monday

Dot-com Bubble

Financial Crisis

Nominal value of $100 invested in 1928 in S&P 500 turned into $382,850 by 2018*

The Norwegian fund management company SKAGEN Funds (SKAGEN AS) is part of the Storebrand Group. Storebrand Asset Management AS acquired SKAGEN AS in 2017, and owns 100% of the company. Storebrand Asset Management AS is 100% owned by Storebrand ASA.

SKAGEN seeks to the best of its ability to ensure that all information given in this presentation is correct, however, makes reservations regarding possible errors and omissions. Statements in the presentation reflect the portfolio managers’ view at a given time, and this viewpoint may be changed without notice. This presentation should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN AS does not assume responsibility for direct or indirect loss or expenses incurred through the use or understanding of this presentation. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this article or are part of a fund's portfolio.

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager's skill, the fund's risk profile and management fees. The return may become negative as a result of negative price developments. You can find more detailed information in the funds’ Key Investor Information Documents (KIID) and prospectuses on www.skagenfunds.com.

Thank you