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Welcome to Soundbites — weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life. For today’s Soundbites, we spoke with Bo Knudsen, CEO of C Worldwide Asset Management. He’s also the managing director of global equities, and we started by asking what sectors he’s taking particular notice of these days.

Bo Knudsen (BK): We think that there’s a higher chance of finding great stocks in what we call “digital society transformation.” The world and countries and we as individuals are in transition into a more digital world, and there are unique companies in that space. Digitalization is also part of the solution to the climate-change challenge, and a company that we find interesting is S&P Global. It is a company that has a ratings business, but has a broad understanding of data and selling that to key client segments. And there are a number of names that are outside of the big platform companies that we find interesting there. Further, there are some great companies to be found in the consumer staples space, with very reasonable valuations. We think we can find stable compounders in the consumer staples space and, in particular, in companies that help the world in its digital transformation.

What he looks for in corporate business models.

BK: Sustainability of the business model is very much key, especially now in a market where you pay many years of earnings, many years of cash flow. Hence implicitly, you assume that the business model actually stays strong. But lasting and profitable business models are rare. There are only [a] few higher-growth compounders. So, I think, indeed, the marathon approach to investing is more important than ever. There is the caveat that low interest rates invite very speculative behaviour, and it can cause fast moves in what I would call “objects of speculation,” where there is no fundamental value creation.

Any examples of those “objects of speculation?”

BK: With all due respect to investors and speculators in Tesla, I would consider Tesla as what could be an example of an object of speculation. It’s a company that is hard for us to invest in because we have a very hard time seeing who is the future winner in the car sector. We think that there’s going to be a lot of competition from existing players, from Germany, from the rest of the world and that’s why we stay on the sidelines.

And finally, why he takes a high-conviction approach and limits his portfolio to 30 stocks.

BK: The rise of indexation has crystallized the difference in what is real and what is not. And ahead, I just don’t see that buying the index blindly is enough. You need to be very selective. Investors understand that there are only [a] few very good companies that are worth investing in. Buying the broad index is not enough.

Many investors over-diversify. Effective diversification comes down to A) that you diversify across different growth rates, and different stages in company life cycles. B) That you diversify across global themes and trends, and then C) that you know your company and you emphasize long-term quality business models. That’s what we call effective diversification. So, when you buy into a favourable sector trend, at the end of the day you actually have to choose specific stocks. So, if you have to choose between the importance of a sector factor and a company factor, we would definitely go for the company factor, as that is what you essentially buy when it comes to exposure. We want the best and we don’t want to dilute our exposure by adding mediocre companies.


Well, that’s today’s Soundbite, brought to you by Investment Executive and powered by Canada Life.

Our thanks again to Bo Knudsen, CEO of C Worldwide Asset Management.

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