Investment Philosophy

Stock picking focus generates higher returns and/or reduces the investment risk. We believe that a focused portfolio with a select number of high conviction stock picks is the most productive and leveraged way to generate superior returns over a longer-term horizon. Carnegie Asset Management's fundamental philosophy is that it is better to have thorough knowledge of relatively few stocks than to obtain diversification via a large batch of shares that would render the general overview more complex. Our competitive edge is achieved by the simplicity of the focused concept, both from an investment but also risk control perspective. Our experience managing focused portfolios has since 1986 taught us that a concentrated portfolio of 25 to 30 high conviction stock picks ensures a sufficiently high risk diversification. A focused portfolio, results in a disciplined buy and sell approach based on the one in/one out better alternative principle. Finding and investing in select few good ideas is the key to how we add value.

The patient, longer term investor achieves the highest return. The impatient investor, who is unable or unwilling to wait until the fundamental value is reflected in the market price of a security, will generally achieve below market returns. Moreover, short-term strategies based on themes and fads often result in frequent, cost-intensive restructuring and thus a greater risk of loss, because of insufficient time to prepare a detailed analysis of the company in question. The element of time works in favour of investments in an excellent individual stock or sector, but against investments in an average stock or sector.

The identification of longer term trends have a significant impact on investments. Carnegie Asset Management focuses on global trends because global trends are important drivers of cash flows and cash flow growth is the key driver of share prices long term. Experience has taught us that investments benefiting from these trends carry a significantly lower risk compared to those based on traditional economic forecasts which seldom prove correct. Furthermore focus on global trends ensures the long-term investment horizon which we find so crucial. Global trends and the resulting themes are used as a macro screening tool which offers an investment framework enabling us to focus and prioritize our resources on identifying unique stock picking ideas.

Carnegie Asset Management has named the tool that we use to implement our philosophy and beliefs in the portfolio's “Trend Based Stock Picking “. This tool is a bottom-up stock picking approach with a trend and theme influenced top-down overlay. In order to achieve the highest possible returns at the lowest possible volatility, Carnegie's portfolio investments are not constrained by benchmark limitations. Consequently, Carnegie's active, yet focused, portfolio management style results in the portfolio deviating significantly from benchmark indices.

Sector Equity Philosophy

Carnegie Asset Management’s sector strategies within healthcare share the same investment philosophy with the other strategies. The objective is to create long-term outperformance through trend-based stock-picking in the pharmaceutical, medical technology, biotechnology and medical service space.

Healthcare is a complex sector characterized by sustainable, high growth which attracts investors. The industry is primarily driven by the huge, unsatisfied medical needs and the accelerating rate at which new scientific discoveries are commercialized.

Demographic factors are also strong drivers. The population in the Western world is getting older but lives longer while growing populations and increased affluence in emerging markets lead to stronger demand for healthcare products and healthcare-related investments. Healthcare expenditure is therefore expected to continue to grow faster than GDP on a global basis. Furthermore, the companies in the sector are benefiting from high barriers of entry, pricing power, patent protection, new scientific advances and the fact that many diseases still lack efficient therapies. The reasons for investing in the sector are, consequently, many. In order to take full advantage of its potential however, specialist skills and very active analysis is required.

The healthcare team at Carnegie Asset Management has extensive experience from asset management as well as the medical industry. For many years the team has also been enjoying a close collaboration with leading scientists at the Karolinska Institute, one of Europe’s leading medical universities and the home of the Nobel prize in Physiology or Medicine. This collaboration gives the team unique insights into the cutting edge of global medical research and invaluable knowledge when the commercial potential of new research projects is evaluated.