Stockholm (HedgeNordic) – DNB TMT Absolute Return, one of a handful of long/short market neutral equity hedge funds in the Nordics, has generated an annualized return of 3.44% since the fund’s inception in November 2010. The fund employs a relatively low net position in equities and aims to generate absolute returns uncorrelated to returns in equity markets.
DNB Asset Management’s TMT Absolute Return fund, which manages EUR 348.8 million in assets under management as of the end of August, has received little attention in recent years, and our team at HedgeNordic sought to find out more about the fund’s team and strategy. We interviewed Anders Tandberg-Johansen, one of the portfolio managers and head of the Global Technology team at DNB Asset Management. In addition to running the DNB TMT Absolute Return fund, Tandberg-Johansen’s team also manages long-only strategies, such as the DNB Technology Fund.
To start off, thank you for the opportunity to learn more about the DNB TMT Absolute Return fund. Our first question is perhaps best intended to simply set the stage for our readers. Can you begin by introducing your fund to our Swedish and international audience?
– The fund is a global equities long/short hedge fund within the telecom, media and technology sectors. We screen more than 500 companies within the universe, covering over 300 of those in detail before entering into a position (either long or short) in approximately 60-80 stocks.
Please tell us about your technology team at DNB Asset Management for a broader picture of who is behind DNB TMT Absolute Return’s investment idea generation process.
– The team consists of me and Sverre Bergland, who has managed the fund since inception in 2001. In 2008 Erling Thune became a member of the team, and later on in 2014 Erling Kise joined, making the team complete. We aim for deep fundamental corporate analysis and we try to meet as many companies as possible before making our investment decisions.
Can you briefly walk us through your stock selection process?
– The fund applies bottom-up stock picking within the global TMT sector. The stock selection process is based upon four pillars: theme, value creation, valuation and momentum.
Theme: We look for long-term trends within the TMT universe to identify the stocks that are best and worst positioned for changing industry trends;
Value creation: After the screening process, we look at the value creation potential. At the core of this process is management evaluation;
Valuation: The focus is on capturing future price directions by identifying value early. E.g., we will occasionally be long stocks that have unfavourable trends or poor historical value creation if we identify deep value that can be realised through future changes in management, mergers, acquisitions, or a change in capital allocation.
Momentum: We carefully monitor short-term earnings momentum and appurtenant market expectations.
Long/short equity managers may not be able to add value when the entire market moves in unison in either direction, but the de-correlation across stocks the market experienced in 2017 benefited long-short equity funds a great deal. Do you believe the de-correlation phenomenon will contribute to your fund’s performance going forward?
– We perform pure stock picking both in the long as well as the short leg. Our aim is to be as close to a zero-beta portfolio as possible, that is, zero correlation with market movements. With that said, we believe that we deliver higher return relative to peers in highly volatile markets. History shows that the strategy has performed well in both bull and bear markets.
Have you measured any difference between the alpha generation of your long and short books?
– We have, over time, seen a positive contribution from both the long as well as the short leg. Over this period of time, the generation has been slightly higher from the short leg.
Can you share some of your key winning and losing themes over the past couple of years with our readers?
– Two themes in the short positions that have been important for the fund’s performance has been our positions in the telecommunications sector as well as in television broadcasting. In the long leg, Samsung has been an investment that has paid off well for the fund’s performance.
There seem to be many strategies that provide some degree of market neutrality, but balancing investments among extensively researched long and short positions in the same sector or industry is believed to be truly market neutral. Do you believe your fund’s focus on the TMT sectors provides you an edge over peers?
– We strive to be truly market neutral, which is a zero-beta portfolio. We treat both the long and the short leg in the same way when it comes to investment decisions. Having a specialized team with a strong track-record makes us confident that we will continue to deliver absolute returns. With this in mind, we believe that the focus provides us with a slight edge over our peers.
And one last question: If you had to single out one feature that distinguishes the DNB TMT Absolute Return fund from any of your peers or competitors, what would that be?
– Equity only, truly market neutral and over 20 years’ experience with a proven strong track-record.