Concentration risk remains the very evident challenge with the US constituting two-thirds of the MSCI All Countries World Index and the ten largest US stocks being more than one fifth of this global index. While opportunities will always present for active managers such as SKAGEN, especially in the emerging markets, making the case for diversification against such a narrow bull market will continue to challenge our advisors.
We do see, however, that most of our clients continue to maintain diversified investment portfolios and limit themselves to slight adjustments to their exposure based on personal or market risk factors. And, since the consensus tail risk remains inflation, this is encouraging.
About grey swans
It’s a cliché to cite geopolitical risk as heightened, but persistent volatility and war and the threat of war in several regions is generating an excess of grey swans – high-impact low probability risks.
Normally, such risks are observed but largely ignored beyond limited scenario planning – both for the investment teams and the business overall. I do think that this year it is different and, as we hit the quarter century mark, many of these risks cannot be as easily overlooked as they were in the past as their probability is no longer so close to zero. And this will further complicate the case for diversification.
Government and bureaucracy are not helping
Close to home, here in Norway, I have listened to several notable figures during this year make the case for a strong domestic financial and investment sector, citing the presence and example of the sovereign wealth fund. While I do agree the fund is a signal benefit to Norway, its mere existence is not enough to foster a strong and enduring savings and investment industry
A competitive regulatory and tax landscape is a fundamental requirement and, currently, I fear we experience an unlevel playing field in Norway, even when compared to our Scandinavian cousins. As a result, we are seeing an exodus of investment products and funds to foreign domiciles and the trend will continue going into the new year.
In SKAGEN, our instinct is to always act in the best interests of our clients and this we will continue to do, despite the cost and distraction that such jurisdictional variations cause. It remains a mystery to me why each national government sees fit to add layers to the finance legislation that emanates from a single source in Brussels, but I guess that is one way to mess up a good idea.
New Year’s Conference – same procedure as every year
As ever we anticipate one of the most important events in our yearly calendar, namely our 22nd New Year's Conference. On 9 January 2025, we will be hosting a hybrid event out of Oslo and Stockholm, welcoming another line-up of prestigious speakers.
Our theme this year is better investment decisions – something we can all benefit from. We will hear from leading academic Alex Edmans, and from the best-selling author who challenges risk and uncertainty, Dan Gardner. There will be two exceptional investors in Jennifer Wallace from Summit Street Capital, and the legendary value investor David Einhorn of Greenlight Capital. Our banker is the hawkish former leader of the Cleveland Fed, Loretta Mester, and SKAGEN’s longtime friend, the investor and geopolitical analyst Louis-Vincent Gave will join us from Stockholm. And the peerless Siri Lill Mannes will once more guide us through the day. I hope you will join us. Find out more about our New Year's Conference and sign up here.
God Jul
All that remains is for me to wish you and yours a merry Christmas and the very best of good fortune for the year to come.
God Jul