Interview with Kurt Kara, Head of Global Value Equities, and Ulrik Jensen, Senior Portfolio Manager, from Maj Invest. Photo: vladacanon Source: iStock

Fundamental data plays a decisive role

Author: Kurt Kara, Ulrik Jensen and Timo Lüllau-Mortensen

Danish investment boutique Maj Invest is committed to classic value investing. The guiding principles of Benjamin Graham and David Dodd are the most important base for any investment. Talking to ChampionsNews, Kurt Kara, Head of Global Value Equities, and Ulrik Jensen, Senior Portfolio Manager at Maj Invest, explain how they select the right stocks for the portfolio of their Maj Invest Global Value Equities.

Kurt Kara, Head of Global Value Equities, Maj Invest Source: Maj Invest

ChampionsNews: Why do you think that value strategies might bring the best yield results for the portfolio of Maj Invest Global Value Equities (ISIN LU976026111) ?

Maj Invest: First of all, our starting point is that we want to have an evidence-based investment philosophy and a process that incorporates that philosophy. Our main belief is that fundamentals matter, and markets create opportunities due to irrational behaviour from investors within factors such as; fear, greed, alignment of interest and one’s own over-estimation of ability to predict etc.

We follow a value strategy because we don’t want buy securities that currently are trading at a premium i.e. we don’t want to overpay for a security. We believe that even gold can be bought too expensive and you should never buy overvalued gold with undervalued silver. Investing in undervalued securities with good fundamentals is the best way to create long term excess return to our investors.

Investing in undervalued securities with good fundamentals is the best way to create long term excess return to our investors.

Kurt Kara
Ulrik Jensen, Senior Portfolio Manager, Maj Invest Source: Maj Invest

ChampionsNews: How do you filter the fitting undervalued stocks with an aspiring balance sheet for your portfolio out of the large universe of international stocks?

Maj Invest: A key part of our process, when we are looking for new candidates, is by use of our proprietary scoring system. Using this system, we compare each company in our universe versus its sector, and the global equity benchmark (MSCI World) on up to 155 different financial ratios. The scoring of the security follows the team’s investment philosophy, which can be boiled down to one single phrase: price is what you pay, value is what you get. “Value” in this context consists of many sub components, such as the value of a strong balance-sheet, the value of a good track record etc. The remaining part of the score, “Price”, is the actual valuation metrics of the company. These metrics follow the company in question and are different from company to company.

ChampionsNews: Why do you concentrate your portfolio on 25 to 35 stocks? Why do you think 25 stocks are enough to diversify a portfolio?

Maj Invest: Our portfolio consists of between 25-35 securities because the diversification effect already occurs after adding 15 names to a portfolio. Thus, the systemic risk, disappears very quickly when you start to diversify your portfolio. Furthermore, we want to our stock selection to impact the portfolios overall return. If we started to add more names to the portfolio, we would start to become more closely correlated with the return of the index, simply because we would look more like the index.

ChampionsNews: Which stocks have been extremely successful in your portfolio in the last six months? (Please name two examples an explain the reasons for an investment in the company) Do sector preferences play any role in your stocks selection?

During 2018, both the American company O’Reilly Automotive and German company MTU Aero Engines has delivered good returns to our investors. O’Reilly Automotive has throughout the year delivered positive returns driven by better than expected accounting numbers, which particularly showed increasing store sales. For MTU Aero Engines, the positive returns in 2018 were also driven by good accounting numbers, where the company saw an increase in its Commercial OEM revenue.

We do not prefer a specific sector over than another. We simply invest in the sectors where we find an attractive value proposition.

ChampionsNews: The ECB has decided to slow down the QE until the end of the year and stop the purchase of bonds. Do you expect the interest rates to grow reasonably again in 2019?

We do not have an opinion on macro. We know macro is important, however obtaining knowledge about what the ECB is going to do with the interest rate is impossible. 

Author: Kurt Kara, Ulrik Jensen and Timo Lüllau-Mortensen
Date of issue: 12/17/2018