t Annual Report Årsrapport //2014
Team: Kjære leser. Den norske versjonen starter på side 9. Disclaimer: Dette dokument er ikke tiltenkt offentligheten og er distribuert til kunder i Verdipapirfondet Nordsjø- Kombinasjon. Dokumentet gir ingen anbefalinger om kjøp eller salg av verdipapirer. Historisk avkastning er ingen garanti for fremtidig avkastning og fondets verdi kan gå ned så vell som opp. Nordsjøkombinasjon tilegner en strategi med mål om undervekt i aksjemarkedene under nedturer og vice versa, men forvaltningsselskapet kan ikke under noen omstendigheter garantere et slikt utfall. I forkant av investering i verdipapirfondet anbefaler selskapet å lese nøye fondets prospekt, vedtekter og nøkkelinformasjon. Øvrige opplysninger om risiko, investeringsområde og investeringsmål samt kostnader er tilgjengelig i verdipapirfondets vedtekter og i nøkkelinformasjonen. Prospektet, vedtekter og nøkkelinformasjon bør leses i sammenheng for å få et komplett bilde av Who are we: North Sea GEM is a fund Management Company in Stavanger, Norway - Set up by seasoned investment professionals. The company pillars are based on building a fund that manages capital the way we believe our personal savings should be managed. With strong emphasis on global macro-economic climate & undervalued assets, we have built a mixed investment fund. Our strategy is reallocation with changing macro and market pricing, where income assets during downturns. Based on our view and our experience this is Dr. Michel Henry Bouchet Chief Strategist mhb@northseagem.com Marius Richter CEO mr@northseagem.com Jan Erik Meidell jem@northseagem.com Per Magne Ludvigsen Fund Manager pml@northseagem.com Dear reader. This document is written in English and page 1-9 Disclaimer: This presentation is not intended for public release. It is distributed exclusively among investors.. The information contained herein does not constitute recommendations on the buying or selling of assets. The value of the fund may go down as well as up. Historical performance is not necessarily a guide for future returns. Although North Sea Asset Allocation adopts an investment strategy that aims to protect against the repercus- The management company recommends all investors to read thoroughly the funds Prospectus, fund bylaws and Key investor information document upon investment decisions. 2 3
NS GEM s macroeconomic outlook: Overview of 2014 and forward-looking assessment of 2015 and beyond 1. Throughout 2014, North Sea GEM remained focused on providing long-term value performance while preserving capital at all times thanks to forward-looking risk management. Our investment strategy has been implemented in the framework of the Macroeconomic outlook that NS GEM designed in mid-2013 on the eve of the FSA s green light. Our macroeconomic forecast proved close to the actual developments of the global economy. 2. North Sea GEM started 2014 expecting another trend-like global growth of 3.7% for the next two years, based on 1,1% in the EU, 2,8% in the US, and 7,4% in China. Our Fall 2013 report concluded: Slow likely to persist in developed countries. We can expect another year of muddling through. In the so-called European periphery, Portugal, Spain and Italy are better cost competitiveness, though at the cost of weak growth. Modest economic recovery is not expected before mid-2014. Our average oil price forecast was $100 for 2013-14, while the actual market price is closer to $95, given the steep fall in the last two months of 2014. 3. Economic growth has been weaker than expected in several regions, including Norway, Russia, Brazil and Japan. The timing of the weakness has varied across regions, in particular in Germany and France that slowed down in the second half of 2014. As ex- standards. 4. Central banks liquidity injections were an important driver of stock markets in developed economies, at least until October regarding the US FED. The end of the FED s quantitative easing coincided with an abrupt decline in stock markets in second half of 2014, followed by another one in mid-december due to falling oil prices and geopolitical turmoil. The combination of the two shocks eliminated most of the equity market gains of the year. The world MSCI index posted a small gain of 7 % in 2014 measured in local currency. This was mainly due to the S&P 500 index, that rose 11 % and is a large portion of the world index, while the large European equity markets had returns between +/- 3 %. EMCs equity markets also suffered from two Secondly, the gradual tapering of the FED s beginning of 2014. As a result, EMCs stocks underperformed with negative annual returns. 2015-16 forward looking assessment At the inception of the 2015 investment environment, we believe the worst of the global systemic risk is behind us. However, close stock scrutiny and risk assessment remain essential given that valuations become high and sometimes unsustainable, particularly in the US market. We expect more turbulent global markets ahead than in the previous six years 2009-2014. Price adjust- of falling oil prices. The velocity of the abrupt decline in energy prices is a double-edged sword because it implies a serious weakness in the global economy s momentum that will affect both developed and developing countries. Oil importers will save on energy bills while oil exporters will lose on export revenues, with broad consequences on cross-border 1. The production increase from U.S. shale oil producers has been huge over the last years, resulting in a US production on par with Saudi Arabia. A large part of that production has break even levels above todays prices and we expect production to be gradually reduced as indicated by the sharp drop in onshore rig count. We also expect the break even levels to come down as and potentially cap the upside on the oil price. 2. Weak global demand in 2014, mainly from OECD Europe, have caused global oil inventories to rise, giving additional downward pressure on the oil price. With respect to the oil price we believe it will continuous supply surplus driven by increased shale oil production and stable high production from OPEC. Saudi Arabia s deliberate policy to maintain its market share removes an important stabilizing factor, namely that key OPEC producers would regulate supply volumes if needed. Saudi Arabia is the only force in the global oil market capable of implementing a production cut, while other producers cannot act at stabilizers. In the second half of 2015 we expect to see a decline in the volumes from US shale production as the number of rigs working has been reduced by 50 % since the peak in September, and this will have a positive price impact. US shale pro- pushing the break even levels down. We expect shale production to gradually come on stream again when the oil prices strengthens and limit the price recovery. Overall, a gradual rebound in prices is expected only in the second half of 2015. The low oil price is due to a combination of four structural and geopolitical factors: 3. While Saudi Arabia, Kuwait and the UAE will be able to use considerable cash reserves to ride out the slump, the rest of the Middle East s oil exporting economies face dire consequences. The world s largest oil producing countries have entered into a price war with American shale producers, and they will be able to keep production levels constant for the near future. 4. The sanctions against Iran may be lifted during 2015, hence an additional supply of crude oil 4 5
The sharp fall in crude oil prices in the second half of 2014, with low levels expected until Q3-2015, has five consequences on the global economy: 1 Tighter liquidity will prevail in 2015, given a drop markets, from sovereign and corporate bonds to equities. Oil exporters will be sucking liquidity out of the costs will increase. Gradual increase in US interest rates might start just after the summer of 2015. 2 In the oil importing countries, including EU, US and Japan, the price fall equates to a tax cut, encouraging consumption, hence higher sales and higher corpo- recovery in Japan and in peripheral Europe. about to exacerbate will force policymakers in the EU growth. North Sea GEM expects that the ECB will resort to a full-scale program of government bond purchases during Q1-2015. The dollar strengthening against the euro and the yen will continue, providing a stimulus for the weaker currencies exporters. China. It reduces the import cost while shoring up oil of lower input costs for coastal manufacturers will dependent hinterland. Overall, China s growth will decline slightly below 7% in 2015-16. Given its global GDP weight of only 16%, China will not pull the global economic recovery above 4% growth rate for the next two years. (See chart below) Zone Japan Norway OECD UK USA World EMCs China 5 The 20 major winners regarding the impact of low oil prices on economic growth are as follows: Asia: Philippines, Thailand, Hong Kong, China, India, South Korea, Indonesia Africa: South Africa, Tunisia Bulgaria, Turkey, Czech Rep., Hungary, France, Greece, Spain and Portugal. Developed countries: Many of the conditions of the last six years slow persist in developed countries in 2015. An economic decoupling will emerge between two economic zones. One the one side, the US economy will show steady growth, at a rate of around 3% for the next two years, helped by higher inventories, faster jobs growth, household consumption and business investment. The outperformance of the US will continue helped by the strengthening of the three most damaged sectors banking, real estate and household with improving balance sheets. Sustained economic momentum and a slow FED exit are essential to the housing market recovery. Hence, we expect growth in income to offset a modest increase in interest rates in the second half tum for consumer spending, tantamount to a tax cuts for household and companies. The dollar appreciation will also keep import prices down for domestic producers and consumers. However, weaker exports due to stronger dollar and weakness abroad (EU and EMCs) will keep holding the US economy back, with In addition, low crude prices will affect domestic oil companies revenues as well as capital expenditure plans. 0 1 2 3 4 5 6 7 Egypt Morocco Tunisia Turkey Greece Spain Portugal GDP Growth forecast 2015-16 % 0 0,5 1 1,5 2 2,5 3 3,5 4 On the other side, growth will remain weak in most EU countries, due to stubborn structural imbalanc- ary trends. Germany s economic slowdown to 1% in per cent target until end-2016. The combination of a full-blown ECB s quantitative easing early in 2015 will not manage lifting EU s economic growth before the end of the year. In Norway, the sharp oil price decline will keep average GDP growth to around 1,5% at most for 2015-16 (i.e., 1,2% in 2015 rising to 2% the following year). A 55 percent slump in Brent crude since a June high has hurt the offshore industry, given that oil and gas make up 22 percent of GDP and a similar share of central government revenues. Over the same period, the krone has lost about 20 percent against the dollar and 8 percent against the euro. The OSEBX benchmark stock index ended the year with a gain half of 2014. Yet thanks to a weaker krone, Norway sumer prices, adjusting for taxes and energy, are close to the central bank s 2.5 percent target. Faster more buoyant consumption and investment. Following the rate cut at end-2014, Norges Bank will probably cut rates further before mid-2015, bringing the benchmark deposit rate to 0.75 percent. Registered unemployment is expected to gradually rise to 4%. Emerging countries and peripheral Europe: Stronger dollar, weaker exports and lower commodity prices will hurt a number of natural resource exporting countries (Africa, Russia, Ukraine, Middle East, commodities producers). North Sea GEM expects EMCs to grow at 4,8% in 2015-16. However, only a few developing countries will achieve sustain- currency depreciation will affect those countries that cannot boost global competitiveness due to structural imbalances. Buoyant exports and foreign of growth in 2015-16. Commodities-based expansion is poised to suffer from weak global growth, excess supply of industrial commodities, and falling prices. Russia s economy will contract by roughly 1%. Slower industrial production growth in China, the world s biggest commodity consumer, will keep commodity prices weak in the medium-term. Depreciating currencies will not be enough to offset the competitiveness weaknesses that stem from quality might accompany a stronger dollar and higher interest rates in the second half of 2015. These most developing nations that have not implemented structural and institutional reforms, particularly in be compounded by currency mismatches related to large corporate debt issuance since 2010. Given this volatile environment, NS GEM will focus on those EMCs that enjoy non-debt creating capital front, we expect gradual normalization in several countries that showed political turmoil since 2011, including Egypt, Tunisia, and Thailand. 6 7
Currency volatility and weaker growth in EMCs mean that the relative risk of investing in emerging market companies remains large. Higher returns in EMCs should not hide turbulences, namely, asset price bub- as opacity and corruption risk. Standards of corporate governance and investor rights still lag behind those in ing country risk analysis more challenging. The availability of fresh and comprehensive socio-economic data is limited. Overall, dynamic portfolio return will emerge from careful country, stock and bond picking in both mature and emerging markets. Risk assessment remains the name of the game in turbulent global markets in 2015-16 more than ever. Drilling down: Equity market outlook 2015-16 US cyclical sectors with low interest-sensitivity Consumer goods (Malls such as Macy s, Wal-Mart) IT companies European cyclical stocks Automobile Non- export-driven companies Airlines Emerging market opportunities Czech Rep., Hungary zone periphery: Greece Weight Return To Return Total 100.0 6.6 6.6 5 Highest 9.8 42.5 4.9 MasterCard Incorporated Class A 1.3 38.4 1.1 Turkiye Halk Bankasi Anonim Sirketi 1.6 40.7 1.0 Allianz SE 2.6 28.2 1.0 Siemens AG 0.9 22.6 0.9 3.4 18.6 0.8 5 Lowest 12.5-22.8-6.0 Ewos Holding As Frn 01-nov-2020 2.9-13.0-1.7 Aker Asa Frn 06-jun-2020 5.2-8.0-1.4 Det norske oljeselskap ASA 2.8-25.8-1.1 Deep Sea Supply Plc 1.2-26.3-0.9 Dolphin Group ASA 0.5-33.0-0.8 Pharmaceuticals and biotech companies Airlines Q&As regarding the macroeconomic outlook in 2015 and beyond Beaten-down energy shares (Q3-Q4) 1. Is the systemic risk removed? In fact, the systemic risk of a debt crisis contamination is replaced by enhanced their capitalization, liquidity and reserve ratios. However, new risks arise from declining oil and commodity prices, putting pressure on export revenues in oil importers. The dollar rally coupled with currency depreciation in EMCs might trigger volatility and desta- 2. Is the worst of the Eurozone crisis behind us? Yes, global growth prospects. We can expect another year of muddling through, not only in the so-called periphery, but also in the core countries, namely Germany and France. Modest economic recovery is not expected before end-2015, once the ECB implements a steady expansion of its balance sheet, better late than never. 3. Is global economic growth about to recover back to medium-term trend? No, despite strong signs of US economic recovery, global growth is expected to reach 4% in 2015-16, i.e. still below trends. China s industrial production and retail sales growth will slow in 2015, export dynamism will decline, and property prices will Asia= Thailand, Philippines Africa/Maghreb= Tunisia 4. Will the decoupling between the US economic recovery and anemic growth in the EU be a lasting trend? No. The dollar s rally and declining prices will force policy makers in the EU and in Japan to step up their tative easing. We expect the ECB to boost domestic half of 2015 with sovereign bond repurchases. Given the meager results of its banking liquidity support program, the ECB will follow the US and BOJ policy measures, with more direct liquidity injections, helping yields to decline. NS GEM assumes that banks will sell government bonds to the ECB instead of incurring negative rates while parking their excess liquidity in the central bank s overnight facility. Spain, Portugal and program. Growth momentum will accelerate in the second half of 2015. 5. Will commodity prices stabilize? Moderate global growth coupled with large shale oil production in the US will keep energy prices at low levels. Excess supply of commodities, sluggish expansion in developed countries, and slower growth in China will maintain weak prices for oil, copper, zinc, iron ore and coal, but also during 2015. 10 største investeringer per 31/12-2014 Prising aksjedel YUM! Brands, Inc. 4.7 % Dividen Yield 2.6 Siemens AG 4.7 % P/E 12 m forward 13.1 Norsk Hydro ASA 4.5 % Price/Cash Flow 6.6 MasterCard Incorporated Class A 4.3 % Citigroup Inc. 4.1 % Allianz SE 3.9 % Alstom SA 3.9 % Bayer AG 3.7 % Aker Asa Frn 06-jun-2020 3.6 % Telenor ASA 3.6 % 2014 Nordsjø Msci 2013* Nordsjø Msci Avkastning 6.6 % 24.8 % 8,1% 10,1% Risiko 8.2 13.1 8,86 11,33 (Std avvik) *2013 tall er fra oppstart av verdipapirfondet Nordsjø-Kombinasjon 11.09.2013 til 31.12.2013 8 9
Forvaltning Nordsjø-Kombinasjon er et globalt kom- eller sektor begrensninger i investeringene. Fondet vil aktivt endre fordelingen mellom aksjer og renter i tråd med markeds synet med det mål å oppnå en best mulig avkastning over tid. Videre så har Nordsjø-Kombinasjon en fokusert forvaltningsstrategi som innebærer å investere i et begrenset antall verdipapirer. Nordsjø-Kombinasjon hadde en avkastning i 2014 på 6,6 % målt i NOK. Andelen av fondets midler som har vært investert i aksjer har variert mellom 45 % og 73 % gjennom året, med et gjennomsnitt på 58 %, og var 69 % ved utgangen av 2014. Det resterende har blitt investert i Norske rentebærende papirer og kontanter. Norske aksjer Norske obligasjoner Frankrike Tyskland Portugal Spania Sør-Korea Fondets aksjeinvesteringer har hovedsakelig vært investert i Europa (55 %) og Norge (30 %), mens investeringene i USA og Asia var på h.h.v. 12 % og 3 %. Ved inngangen til året hadde vi et positivt syn på utviklingen i aksjemarkedet globalt, med hovedvekt på Europa og USA, mens vi hadde et negativt syn på store deler av fremvoksende markeder i Sør-Amerika og Asia. Aksjer Obligasjoner Kontanter En av fondets viktigste bidragsytere i 2014 var investeringen i Mastercard som ble gjort i august 2014. Aksjen la på seg 13 % målt i USD i perioden frem til årsskiftet, mens S&P 500 indeksen steg 4 % i samme periode. God vekst i inntektene hovedsakelig som regioner, bidro til en inntektsvekst på 13 % og en EPS vekst på 19 % målt i lokal valuta (fra Q4 rapport etter årsskiftet) Gitt den positive utviklingen i underliggende resultater har vi økt kursmålet i Mastercard og har et positivt syn på aksjen. For Nordsjø-Kombinasjon har de kraftige valutasvingningene og svekkelsen av NOK, spesielt i andre halvår 2014, ført til et positivt bidrag fra investeringer notert i Euro og US Dollar. Nordsjø-Kombinasjon har helt siden oppstart i 2013 sektoren, hovedsakelig i Europa og USA. Forventning om økt vekst kombinert med en attraktiv prising i deler av sektoren er begrunnelsen for dette. I 2014 var mest på den positive siden, mens industriselskaper, herunder oljeserviceselskaper, bidro mest negativt. Det som dro avkastningen i fondet ned i 2014 kan hovedsakelig relateres til to type investeringer. 1) Aksjeinvesteringer innen olje- og oljeservice, og 2) selskapsobligasjoner i Norge. 1) De siste av fondets aksjeinvesteringer innen olje- og oljeservice ble solgt 19. juni som følge av reduserte investeringer i sektoren. Sektoren hadde allerede hatt en negativ utvikling og salget realiserte et tap for porteføljen. I ettertid har oljeprisen svekket seg betydelig mer og utsiktene for sektoren har forverret seg. 2) Økte risikopremier i obligasjonsmarkedet, spesielt i high yield segmentet, ga et prisfall på obligasjoner mot slutten av året. Av fondets 6 obligasjonsinvesteringer var det en sterk negativ kursutvikling i Ewos Holding og Aker, som bidro negativt til avkastningen. Utsikter Tyrkia UK Ved inngangen til 2014 var North Sea Gem mest positive til utviklingen i det Europeisk aksjemarkedet. Forventning om tiltagende økonomisk vekst, kombinert med en rimelig prising var bakgrunnen. Skuffelser på veksten gjorde at de store Europeiske aksjemark- i lokal valuta, mens USA og noen utvalgte fremvoksende markeder gjorde det sterkt. For 2015 gjentar vi vårt positive syne på Europa hvor vi mener å se enda sterkere tegn på at veksten vil tiltar. For USA venter vi en fortsatt bedring i økonomien, men erkjenner at prisingen av aksjer ligger en del over sammenlignbare markeder. 10 11
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