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Nordea's Nøddekær: back China but avoid its banks

Nordea's Nøddekær: back China but avoid its banks

Nordea Emerging Stars Equity Fund manager Jorry Rask Nøddekær has made China and tech his $600 million fund's biggest country and sector overweights despite continuing to shun China's banks.

While the Phillipines is also an overweight, China now represents more than 24% of the fund with Noddekaer focusing on Chinese health care, consumer and internet names, as well as stocks engaged in tackling the country's growing environmental issues.

He has also made Samsung his largest fund position on the belief it is sincere about improving its corporate and environmental governance.

Focus on SRI

With the fund leveraging Nordea's ESG (environmental, social and governance) stock screening team, Noddekaer is tending to shun China's state owned companies, including the banks, which he describes as a 'total black box' for their lack of transparency.

'We focus on companies with as much shareholder value as possible and returns on capital (ROC) is absolutely crucial.'

Companies are ranked A, B or C in terms of their sustainability and corporate governance strength, and the fund invests only in those that attain A or B status.

'Most of our exposure is to B - rated companies which tend to be those that are still in the early stages of adopting better sustainability models as that tends to be where the biggest alpha opportunities are. If you invest in companies that do not engage with ESG (environmental, social and governance) you will end up in trouble.'

The fund invests in around nine themes, with the emerging consumer theme currently offering Noddekaer the most opportunities, although industrial renaissance and environment and resource efficiency are also key areas.

That focus has led to a large fund bias to tech, which represents around 24% of the fund.  Noddekaer's biggest fund positions are in Korean tech giant Samsung Electronics (6.73%) Taiwan Semiconductor Manufacturing (4.5%) and Chinese internet giant Tencent (4.48%) while Chinese smartphone component maker Media Tek is also in the fund's top 10 at 2.5% of the fund.

Nøddekær believes the sector is still trading at a significant discount to normal consumer facing names.

Samsung changing for the better

Overall, the fund remains underweight both Taiwan and Korea as Nøddekær thinks it is hard to find enough interesting growth stories. 

Despite an indifferent long term record on corporate governance, Nøddekær is adamant that Samsung is changing for the better and he is also optimistic that the company is keen to create a stronger dividend culture.  

'We have a quarterly conference call and always get full access to them. They are starting to build a dividend policy and we think they are sincere about engaging with SRI. We are currently discussing their supply chain and they are putting a lot of people on the ground to give them better control of the process.'

Nøddekær says the extra focus should allow them to weed out any issues at some of the factories they use in the region.

'They have spent $120 billion building up an international brand so they don't want to blow it on one factory in China.'

Over the past year to the end of September the fund has returned 3.3% compared to 2.5% by the average manager in the equities - global emerging markets sector in US dollar terms.

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