I found myself sat in stationary traffic in Stavanger this week. How quickly we appear to have bounced back from what seemed a quieter and more gentle time that is already behind us. The origin of the virus remains unclear – whether natural or manufactured – as does a long-term counter to it. So, we strike a cautious balance between securing the health of the population and improving that of the economy. This makes sense. Politics has shaken off the thin veneer of consensus and returned to more partisan ways. China is rattling its sabre to the south towards India and to the east towards Taiwan, not to mention Hong Kong. And our American friends are struggling with profound and historic issues, exacerbated both by the pandemic and by an administration unlikely to provide the visionary and forgiving leadership required.
At first sight, the capital markets are returning to year start. This seems somewhat detached from the real economy. While the immediate threat of a new great depression may have abated, it is very clear that some industries and sectors will struggle to recover for the foreseeable future, some perhaps never. Generalizations are therefore risky; a more active and detailed approach is required.
What have we learned?
What, then, have we learned from these past months of global challenge? The office is not dead; but it is changing. The importance of business travel was perhaps overstated. Good leadership never goes out of style, especially when shortcomings are recognized and acted upon. Values matter, and those companies that were able to demonstrate shared purpose in the face of the pandemic have strengthened their brand. We work best, and are happiest, when we all pull together and engage the strong sense of community that is natural to the human condition.
Our initial analysis of client behaviour during this period suggests that those with a clear plan stuck to it and fared best, especially if they tested their investment strategy against possible scenarios together with their advisor. Also, clients appreciate the uplift in digital interaction from webinars and other on-line collaborative tools; but face-to-face interaction remains important for many – and SKAGEN's offices and advisors are available by appointment.
The Green Recovery
The pandemic has also sharpened the lens of sustainability. Environmental, social and governance (ESG) issues continue to inform investor decision-making and capital flows to an increasing degree. The ESG space is very crowded and noisy right now, and not all of it is credible. For SKAGEN, this is not about demonizing the local energy industry here in Stavanger, an industry that has contributed much to the success of SKAGEN and our clients. It is rather about encouraging sectors and industries to adopt more sustainable practices, ensuring they are responsible towards shareholders, employees, the environment and society. The process we adopt for this combines exclusion, integration and active engagement. It remains plain common sense that an investment firm like SKAGEN should adapt to the demands of the next generation of savers and pensioners. Our latest quarterly sustainability report provides comment on the impact of the pandemic as well as record of ongoing engagement with portfolio companies.
Recovery – a long-term view
The recent BAML Global Fund Manager Survey for April 2020 saw investors predicting the global economic recovery as one of five types: V-shaped (15%), U-shaped (52%), W-shaped (22%), L-shaped (7%), or other (3%). Whether one considers the market over or underpriced, the uncertainty creates opportunity. We do not seek to time the market. We aim to tune out the noise and focus on a thorough investment process that finds good companies that will perform well over time against a range of economic outcomes. This is our signal task in SKAGEN, and we are committed to it.