London (HedgeNordic) – The award-winning Sissener Canopus global equity long/short strategy has annualized at 12.8 percent and made 268 percent (NOK share class) since inception in April 2012, with less volatility than long only equity indices. The fund is amongst an elite group of Nordic-based hedge funds that have delivered a Sharpe ratio near one though this is a fortunate consequence of the investment process, rather than an explicit target.

“We do not manage returns to a Sharpe target but it happened over the past 10 years. Much of that period saw a bull market with declining interest rates but now it is more demanding,” says founder, Jan Petter Sissener, who has presided over impressive growth of people and assets. When the firm started in 2009 the board of six people, including the former CEO of Statoil (now called Equinor), was larger than the team of four people. Now there are six investment professionals alone (five Norwegians, and one Brit who is married to a Norwegian). Assets have grown to EUR 600 million in Canopus and a Nordic credit strategy.

“We do not manage returns to a Sharpe target…”

If there is no Sharpe target there is certainly an ambition to produce positive alpha. Average annual alpha has been between about 4 percent and 7 percent, depending on which benchmark is chosen. The best benchmark would probably be a blend of Norwegian, European and US equities to reflect the fund’s allocation. As of March 2023, long equity exposure was roughly 50 percent Nordics, 35 percent Europe and 15 percent US.

Nordic exposure has sometimes been higher: “we have only limited value add in Europe and the US, more based on a sector approach. If we like oil or banks, we look at European names,” says JP Sissener. But the investing mindset includes a global approach, which is natural for some of Norway’s more global companies.

“When we look at Norway’s biggest company, Norsk Hydro, we need to look at the whole value chain including alumina miners, customers such as European car makers, and competitors such as Alcoa. It would then be a shame to be restricted to Norwegian equities when we may find opportunities in Europe or North America, including some sideways pair trades (but not Asia or EM),” says co-portfolio manager, Philippe Sissener. “Since Covid, we do remote meetings globally and interview global companies through teams and zoom meetings,” he adds.

Equity beta has made a positive contribution in most years and the fund has averaged 60 percent net long since inception. The net long has ranged from over 100 percent to a brief period of being slightly net short in March 2020, when put options kicked into action and some extra short futures were added to more or less neutralize equity market exposure.

“After the first pandemic and lockdown since 1917 we did not understand anything and stayed neutral for a few months. Ideally, we are 100 percent long and sometimes even more, but we also have to have hedges. Exposure depends on our comfort levels around valuations and if markets are cheap, damn cheap, expensive or uncertain. Ideally we get longer as the market falls and shorter as it rises. We take a market view on a rolling 3-month basis. We also try to hedge more around reporting season because it has asymmetric risk: companies reporting good figures might rise 2-3 percent but those reporting bad figures could gap down 10 percent and we would have no ability to act,” says JP Sissener.

“Exposure depends on our comfort levels around valuations and if markets are cheap, damn cheap, expensive or uncertain. Ideally we get longer as the market falls and shorter as it rises.”

The only losing calendar year was 2018, when the Canopus strategy was wrong footed after lifting its equity hedges in December 2018 in the hope of a Santa Claus Christmas rally. In fact the fund had its deepest drawdown as equities dropped by over 10 percent due to rising interest rates, Quantitative Tightening, and a technology crunch, all on top of an Asian trade war. Late 2015 and early 2016 was also a difficult period, and reaching back to before the fund launch, late 2011 was also tough.

A direct dialogue with investors 

Communication with investors becomes especially important in challenging market conditions. Many hedge fund managers in the US and Europe have no retail investor base, and even those that do will often delegate investor relations to distributors and platforms and have no direct contact with retail clients. In contrast, Sissener is distinguished by maintaining a close dialogue with its 6,000 strong investor base.

In March 2020, Sissener began offering weekly video communications every Sunday to calm investors down, and continues to provide a monthly video. There are also 5 or 6 Christmas lunches each year in Oslo hosting 200 or so guests at the Continental Hotel. Sissener is increasingly sought after by distribution platforms but is rather selective in choosing which ones to share fees with; so far the fund has been onboarded onto platforms in Germany and Austria. Of EUR 300 million of assets in Canopus, EUR 280 million comes from the Nordics including a mix of retail, high net worth and family offices in Norway.

Value and growth

The analytical approach has a common sense emphasis on no-nonsense cashflows. The long book usually has a mix of growth and value styles, though the balance does vary and there are also different opinions about how to classify some stocks. “We think Storebrand is a growth stock, growing at 10-15 percent per year as the younger generation need to save for their own pensions, but it is viewed as a value stock,” says JP Sissener.

In March 2023 the top holdings include local chip maker Nordic Semiconductor and also the Nordics’ largest listed company, Novo Nordisk, both of which are definitely growth stocks. “Novo is a value growth company. Its new weight loss injection is growing like crazy on top of the diabetes treatment. It is not cheap but is a quality growth stock with dominant market share,” says JP Sissener.

Some stock picks start with a sector, such as nuclear. “We think nuclear is essential for a solution to the energy crisis and there can be no green transition without it. We started top down and we found two uranium miners listed in Canada,” says JP Sissener.

“Equally research can start with the stock, so long as it is not on the ESG exclusion list and passes our good corporate governance screen,” points out Philippe Sissener.

The fund has occasionally and opportunistically participated in Nordic IPOs, flipping some of the green issues seen in late 2019, but more often Sissener has been a cautious observer of issuance. “IPOs usually have bad intentions that can be beneficial for exiting shareholders. The perfect time for private equity to exit is when markets are not thinking”, says Phillippe Sissener. Some private equity backed IPOs have even become short ideas.

Shorts in 2022

In many years Sissener Canopus is really a long equity fund with variable hedges and derivatives while single stock shorts play a smaller role. 2022 however proved to be the best ever year for the single stock shorts, which were up 7.9 percent, accounting for most of the total return of 8.5 percent. “The best theme was Swedish real estate, initiated in January 2022. We used our expertise in credit analysis and worked out that Swedish real estate companies cannot service their debt with higher interest rates and lower yields on buildings,” says Philippe Sissener, who also manages the credit fund launched in 2019.

“We used our expertise in credit analysis and worked out that Swedish real estate companies cannot service their debt with higher interest rates and lower yields on buildings.”

Scandinavian Airline System was also a good short in 2022 while put options on Tesla, which had lost money in 2020 and 2021, paid off in 2022. Tesla founder Elon Musk may share Sissener’s liking of Novo’s wegovy treatment, but the Tesla stock is too richly valued for Sissener’s liking.

Single stock shorts are usually small, starting at around 1 percent position sizes, because if they go wrong the position gets bigger.

A more challenging environment for long stock-picking could sow the seeds for better opportunities. Sissener’s best calendar year, up 34.5 percent, was 2013, taking advantage of cheap valuations after the European sovereign debt crisis. If the banking problems of March 2023 do spark off a larger crisis, Sissener could be well positioned to exploit lower valuations.

This article features in HedgeNordic’s Nordic Hedge Fund Industry Report.