After more than a decade as a stockbroker in Oslo and London, Morten Norton Halle developed his own framework for investing in equities, shaped by close observation of what worked and what did not across market cycles. That approach now underpins Steadnor Nordic and Steadnor European Large Cap, launched in April and built around three core principles: a systematic process to reduce behavioural biases, a focus on company quality measured through return on invested capital (ROIC), and an underlying assumption of mean reversion.

From Equity Sales to a Systematic Process

“The story behind the strategy stems from observing the market from an equity-sales perspective and trying to see what works and what doesn’t over time,” says Halle. After more than a decade as a stockbroker, he left DNB in 2020 to invest his own capital. The experience had reinforced a central observation: even sophisticated investors are vulnerable to behavioural biases. Recency bias, for example, can lead investors to become excessively bearish when markets are weak and excessively bullish when conditions improve. These tendencies became an important reason for Halle to build a process that systematically limits the influence of human behaviour.

“The story behind the strategy stems from observing the market from an equity-sales perspective and trying to see what works and what doesn’t over time.”

For Halle, the appeal of a systematic process is less about replacing investment judgment altogether than about removing some of the behavioural distortions that can undermine it. “Having a systematic approach eliminates a lot of the human biases that stand in the way of alpha for a lot of investors,” he says. “We are our own worst enemy sometimes when it comes to investing. You can be incredibly smart, but IQ isn’t necessarily what makes you beat the market.”

ROIC as the Measure of Company Quality

The second pillar is company quality, with ROIC at the centre of the framework. Halle’s research led him to conclude that companies capable of generating high returns on invested capital tend to exhibit characteristics that make them attractive over longer periods. “I have been fairly scientific and analyzed what makes some companies work and what makes others not work. There seems to be one common denominator: return on invested capital,” he says. The measure is not treated as a short-term performance signal, but rather as an indicator of a business’s ability to generate attractive economics over time.

One feature Halle sees in high-ROIC companies is persistence. “There seems to be some autocorrelation. If you have high return on invested capital over time, there’s a good chance you’re going to keep having high return on invested capital over time,” he says. The persistence of high returns is particularly important to Halle because he believes it captures something broader than a single financial ratio. Culture, technology, intellectual property, competitive positioning or other less easily quantifiable advantages can all ultimately manifest themselves in superior returns on invested capital.

“It may be that what makes the return on invested capital exceptional is the culture. It might be the technology. It may be so many things, but at the end of the day, it manifests itself through a high return on invested capital.”

“These businesses tend to always bounce back because of some X factor,” Halle says of businesses with consistently high ROIC. “It may be that what makes the return on invested capital exceptional is the culture. It might be the technology. It may be so many things, but at the end of the day, it manifests itself through a high return on invested capital.” Halle acknowledges that low-ROIC businesses can occasionally produce exceptional investment returns when they successfully turn around. The challenge, however, is timing. “Some of them do, and then you can really make exceptional returns when you do, but you need to get the timing perfectly right,” he says. “With the high return on invested capital companies, I can sleep well at night just knowing that these are great companies and they’ll do fine.”

Mean Reversion as a Core Principle

Halle’s systematic approach also reflects his belief in mean reversion. Rather than trying to predict the future, Halle’s approach assesses risk and reward on the assumption that company margins, valuations and returns on capital tend to move back towards historical norms over time. This creates an important distinction between identifying quality and simply extrapolating current profitability indefinitely. “Companies’ margins tend to go back to a historical mean, as do valuations and returns on capital employed,” he says. “Assuming mean reversion, investing in companies with high return on invested capital should be a very good strategy over time.”

“Assuming mean reversion, investing in companies with high return on invested capital should be a very good strategy over time.”

Portfolio concentration is another important feature of how Halle implements the strategy. Steadnor’s portfolios typically hold between 10 and 15 companies, reflecting Halle’s preference for allocating capital to the strongest opportunities rather than maintaining a long tail of small positions. “The decision to be concentrated is important if you want to be fairly different from the benchmark you are trying to beat,” he says. “You want to cherry-pick the very best opportunities. For me, it’s about risk-reward.” Halle points to research suggesting that the incremental diversification benefit declines significantly after roughly the eighth to tenth holding. “It feels wrong to have a long tail of companies that have 1 percent weight. Fifteen is a pretty good, sweet spot.”

Using Valuation to Avoid Overpaying

Valuation provides a final discipline, although it sits behind quality in the investment hierarchy. Drawing on Charlie Munger’s preference for “an excellent company at a good price” over “a good company at an excellent price,” Halle sees valuation as a useful check against excessive enthusiasm. Novo Nordisk provided a recent example. Despite scoring well on the quality metrics, the Danish pharmaceutical company’s valuation became too demanding amid enthusiasm surrounding its obesity-drug franchise. “It was a classic example of a fantastic company just getting too hyped on this obesity-drug potential,” Halle recalls. “The valuation was so poor that it didn’t make the top 15, or even the top 20 or top 30. That was a good example of where valuation comes in quite handy.”

Halle is nevertheless reluctant to reduce valuation to a single multiple or metric. “What is valuation? What makes something expensive and not? At the end of the day, something is only expensive compared to something else. Compared to what?” he asks. His framework therefore looks at several dimensions. Rather than treating valuation as an independent investment thesis, Halle describes this combination of factors as part of the model’s “secret sauce.”

The approach is now being deployed through Steadnor Nordic and Steadnor European Large Cap, both launched in April. As of August 25th, Steadnor European Large Cap was up 13.3 percent in NOK (17.3 percent in EUR), while Steadnor Nordic gained 16.2 percent in NOK (19.9 percent in EUR) net of fees, with both funds beating their respective benchmarks. Halle sees the model as scalable beyond the two existing strategies and is open to expanding the fund range over time. “The objective for Steadnor is to open more funds based on the exact same strategy,” he says. “It is very scalable.”