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Eyeing Positive Territory Amid Undervalued Opportunities

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Stockholm (HedgeNordic) – Origo Seleqt, a concentrated long-only equity fund focusing on Nordic micro-caps, is approaching positive territory for the year after riding a broader rally since November. Portfolio manager Christoffer Ahnemark identifies “many overlooked and undiscovered quality companies at extremely attractive valuations” after a challenging environment for micro and small-caps in 2022 and most of 2023.

“After the major down cycle in the years 2022 and 2023, valuation levels have come down considerably,” considers Ahnemark, who joined small- and mid-cap-focused asset manager Origo Fonder in the summer of 2021. Acknowledging the challenging market since Origo Seleqt launched in March of 2022, Ahnemark points out that, despite employing a long-only approach, concentration has helped the fund avoid a significant drawdown.

“After the major down cycle in the years 2022 and 2023, valuation levels have come down considerably.”

“At Origo Fonder, we invest with conviction. Through our investment model, we manage to identify positive change journeys early on, which are not yet on everyone’s radar,” explains Ahnemark. “We look for the very best opportunities in the entire Nordic region,” he elaborates on how the fund has managed to avoid a significant drawdown. “We only own companies we truly believe in. Strong business models, with high profit growth and attractive valuation levels are general themes in the fund.”

In an environment of falling valuations and improving company fundamentals, the team at Origo Fonder has been advocating their holdings to pursue share repurchase programs to optimize shareholder value. “Buyback programs are the preferred capital allocation option in this environment,” says Ahnemark. “This is because many shares are fundamentally undervalued, where great value creation can take place by utilizing strong balance sheets and surplus cash to acquire shares below their intrinsic value.” Throughout the year, the team has seen buybacks in several of Origo Seleqt’s large holdings such as Spar Nord, Trifork, Nekkar and Norva24.

“Buyback programs are the preferred capital allocation option in this environment.”

Due to their focus on active ownership and concentrated portfolios, the Origo Fonder team often works closely with their holdings, engaing in direct dialogue with company management and board of directors. Ahnemark and his team are also advocating for Danish industrial wholesaler – Brødrene A&O Johansen – to launch a similar buyback program. “It is something that we raised with management. There is ample room for buybacks and the stock trades well below what is justified given the free-cash-flow potential, the leading market position and the real assets on the balance sheet, primarily central warehouse and other properties,” says Ahnemark. “In the short term, we think it could unlock a 50 percent upside, but in the longer term, the stock is worth significantly more.”

Over multiple decades, Nordic smaller companies have outperformed their U.S., European, and global counterparts by a considerable margin. Even so, history shows that most stock market returns usually come from a tiny fraction of companies. Over the last 20 years, just three percent of names out of all the companies in the MSCI Nordic Small Cap index accounted for 40 percent of the gains made by positive stock contributors. “Thinking differently and going against the herd is rarely easy, but we feel that the biggest mispricings are in under-analyzed and misunderstood companies,” Ahnemark explains Origo’s approach for picking stocks. “It is important to look beyond popular names and take the path less traveled when it comes to true alpha generation in the small and micro-cap space in the Nordics.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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