(Bloomberg) -- It’s time for stocks to take over the baton if the equity rally is to continue.
While low volatility stocks have outperformed since the financial crisis, now looks more attractive, according to Oyvind Fjell, portfolio manager at Norwegian Skagen AS.
“If the rally should continue, it’s stocks that must lead,” Fjell said by phone last week. “We find exciting stocks within cyclicals, which look cheap.”
Yield stocks paying steady dividends have performed well but are now growing expensive with limited upside, said Fjell, whose more cyclical bets include Deutsche Lufthansa AG, Norsk Hydro ASA and Boliden AB. Fjell sees the German airline as underd even as agreements with labor unions and reduced competition from low-cost airlines provide “more clarity.”
Global stock markets have continued to rally this year as strong earnings reflect an improvement in the macroeconomic picture. The MSCI All Country Index has risen about 40 percent from a low in February 2016, while the MSCI World Value Index has lagged with a return of 35 percent over the same period.
Fjell in July started to manage the 7.8 billion-krone ($1 billion) Skagen Vekst fund, which invests at least half of its assets in the Nordics and the rest in global stocks. He earlier managed Storebrand ASA’s Delphi Nordic fund and intends to use the same methods that made it a top Nordic fund to boost performance at Skagen, itself recently acquired by Storebrand.
Potential Trigger
“I use momentum for idea generation,” he said. “To find companies that are underd and where there’s a trigger that potentially can drive the stock.”
Fjell and his partner Alexander Stensrud are building a balanced portfolio with stable stocks and bets with momentum. The fund’s biggest holdings were pharmaceutical maker Novo Nordisk A/S, chemical company Lonza Group AG and Samsung Electronics Co. Ltd. at the end of September.
As for the market as a whole, valuation isn’t “particularly high”, especially considering the low interest rate levels and the prospect of them remaining low for some years, he said.
“There’s a lot of cash going into the stock market so prices can continue up,” he said. “There aren’t any clear big risks right now. But there could, as always in the stock market, be a correction.”
©2017 Bloomberg L.P.
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