Photographer: Freya Ingrid Morales/Bloomberg

Picking Boring Stocks Pays Off for Norway Manager of $22 Billion

  • Data driven analysis whittles the world down to 100 stocks
  • Fund ignores economic developments, only earnings matter

Buying stocks where not much is happening can give surprising results.

Wading through 8,000 companies to find about 100 “boring” stocks has allowed Nordea’s Global Stable Equity Fund Unhedged to outperform all but 2 percent of its peers, even as it also takes less risk, according to Robert Naess, a portfolio manager in Oslo at the asset management unit at Nordea Bank, Scandinavia’s largest lender.

Robert Naess and Claus Vorm

Source: Nordea Bank

While investors seeking cover from China’s slowdown and slumping oil prices has lopped 15 percent off the MSCI World Index since last May, Naess’, and his partner Claus Vorm’s, portfolio of stocks where “not much happens” is outperforming. He has an unemotional method in placing 20 billion euros ($22 billion), picking only companies with the most stable earnings and avoiding overpriced stocks.

“When we started I thought we could give the same return at lower risk,” Naess said in an interview on Thursday. “But now we have delivered better returns over 10 years at lower risk.”

The fund has averaged an annual return of 13.6 percent over the past five years, beating its index by 5.9 percentage points. The fund only takes 68 percent of the market risk, as its beta shows.

The fund typically invests in health care companies, telecom operators and utilities. Its biggest holdings now are Johnson & Johnson, fixed-line phone company Nippon Telegraph and Telephone Corp., Verizon Communications Inc. KDDI Corp. and Stryker Corp., a maker of artificial hips and knees.

In the past months the fund increased in Air Liquide SA and EBay Inc., while it sold McDonald’s Corp., Consolidated Edison Inc. and AGL Energy Ltd. as their stock prices outpaced earnings.

Naess, who also manages emerging markets equities, says those markets are now “definitely cheaper than developed markets.” He prefers South Korea and South Africa, where there are “many good companies”.

“The worst among emerging markets is Latin America,” he said. “Very weak earnings revision and rather highly priced.”

Generally, Naess doesn’t pay much attention to macroeconomic factors since they’re usually priced in, he said. Instead he updates weekly the earnings estimates for about 5,000 companies.

“There are few in the world that use as much data as me,” he said. “The stock market focuses too much on macro -- only earnings are important.”

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