Value and INDEX+
Great Dane Fund Advisors specializes in two very distinct but also complementary investment disciplines. Active value and enhanced index investing.
Our enhanced index strategy named INDEX+ is a multi-factor strategy which aims to create excess return to its global developed market benchmark by overweighting small cap, value, momentum, ESG and minimum volatility factors while keeping tracking error under control and at a low index-fund-like level. We are the advisor of Danish mutual fund Great Dane INDEX+ (UCITS). The fund is by far the lowest priced Danish equities mutual fund. An annual TER of 0,12% plus 35% of excess return over its benchmark makes it less expensive than even the very largest global index trackers from iShares and Vanguard.
Our team members were early movers in Denmark when launching the first index and quant fund family in 2000.
Our value strategies follow a traditional bottom-up Benjamin Graham style philosophy with a strong focus on undervalued cash flows, assets and earnings, strong balance sheets, long-term sustainable business models and shareholder focus. We are the advisor of two Danish publicly traded mutual funds (UCITS), Investeringsforeningen Great Dane Globale Aktier and Great Dane Europa Value, that both follow our value process.
Our investment philosophy is based on a long-term industrial mindset, inspired by Benjamin Graham, the father of Value Investing. Graham focused – and so do we – on the underlying intrinsic values of the companies he researched – not on the daily pricing of the same companies as so many do. Besides Benjamin Graham, we are also driven by our founders’ overall approach to business, the ownership of that business and preservation of values through the generations.
We aim to invest in companies with solid, sustainable, long-term business models which stand to benefit from strong balance sheets and relatively low financial indebtedness. The share price of a company often fluctuates meaningfully around the intrinsic value. When a company appears sufficiently undervalued, provided it meets the aforementioned criteria, we typically invest. Furthermore, when determining a company’s true value, we integrate ESG into our overall research programme. This analysis is an integral part of the fundamental analysis all companies undergo when we analyse them.
When we invest in a company, it is obviously to make a financial return. Our investments are usually based on the expectation that the companies in our portfolio will generate economic value either through present cash flows or through expected future cash flows. Alternatively, there may be a crystallisation of other values in the company during the period in which we own the shares.
We are not only co-owners of the companies we invest in. We also act as such. Thus, we do not invest in companies solely in the expectation that we can quickly sell the shares at a profit (as many do). In the short term, there is rarely a meaningful change in the underlying value of the company, hence we distinguish between long-term investing and short-term speculation.
The two mutual funds Great Dane Global Equities and Great Dane Europa Value are actively managed with Great Dane Fund Advisors advising. We select a portfolio of equities in the expectation that long-term returns will be superior to those of the stock market in general, measured by the two benchmarks MSCI World incl. dividends, measured in Danish kroner, and MSCI Europe incl. dividends, also measured in Danish kroner.
The global fund invests in 30-60 companies and the European fund in 25-40 companies. This level of diversification meets our desire to spread the risk in the funds without having too many companies in the portfolio, allowing the investment team to follow all holdings meticulously.
Great Dane Fund Advisors conduct a thorough analysis of those companies emerging from the initial idea stage to ensure they live up to our philosophy of being undervalued whilst subscribing to a long-term, sustainable business model. They must also have a strong balance sheet and be only modestly indebted. In the ESG-part of our research programme, we also zoom in on how shareholders are treated.
The Global Equities fund cannot deviate more than 15 percentage points from the regional exposure to North America, Europe and Asia-Pacific respectively in MSCI World. As far as GICS sector exposures are concerned, they cannot be higher the than benchmark exposures plus 10 percentage points. The same 10 percent limit applies to Europa Value.
Liquidity in the underlying assets
At least 80 percent of the portfolio must at all times be invested in shares, where the position in the fund may not exceed 3 days’ trading volume. As far as the remaining 20 percent is concerned, no position must exceed 5 days’ average trading volume (both measured on the basis of 30 days’ average trading volume).
We are patient and do not expect the full return potential to necessarily materialise in either 6 or 12 months’ time. That often takes 5 and sometimes even 10 years. Every now and then, it happens much faster than that, though, for example in case of a takeover where there is an attractive bid for one of our companies. That said, we always strive to follow our companies as closely as possible and act as owners throughout the holding period.
The investment team at Great Dane Fund Advisors operates a rigorous process. Global and European stock markets are systematically screened to find new investment candidates. However, new ideas can also come through other channels. Most importantly, all new ideas must go through exactly the same process, no matter how they are sourced.
To begin with, companies that meet the basic investment criteria will be analysed in a proprietary model.
If this hurdle is passed, a first ‘pitch’ is prepared, a so-called “one-pager”, which summarises the business model, markets, key figures, ESG ratios, return potential and various risks associated with the company.
The share price is then evaluated at a team meeting where it is decided whether a further in-depth analysis is to be carried out. If so, an investment case is built on the company. The latter will typically take several days and often weeks.
The investment case is presented to the team who makes the final decision whether to invest or not, and a target price is set.
The investment is integrated in the portfolio, taking into account the portfolio’s overall characteristics and exposures.
All companies are continuously monitored for news feeds, quarterly reports, annual reports, capital market days, etc.
The investment is sold when the share price of the company reaches the previously set price target, or in the event that there is a significant deterioration of the fundamentals, which contributes to lowering the intrinsic value of the company or makes it difficult to determine it. Should that happen, the target is no longer intact.