Sissener has been constructive on energy prices, both before and after Russia’s invasion of Ukraine, and finds the cash generation and high dividends of oil majors compelling. There is also some exposure to oil services firms, in Norway and the UK, that may benefit from increased energy exploration activity in general, and the desire for energy security in particular. For e.g. oil services group Petrofac which was bought after its penalty settlement with the UK SFO drew a line under controversy around bribes. Incidentally, Sissener suggests that, “The UK windfall tax is a misnomer, since oil is well below its peaks in nominal let alone inflation adjusted returns. The tax caused some short-term noise but does not impair the long-term investment thesis”. Oil tankers are another related holding which could gain from Russian cargoes needing to cover more distance.

Sissener favours leading banks with the largest market shares in their local markets, such as BNP Paribas and Intesa which are also top ranked for returning capital to shareholders. “Russian exposure had been a concern, but it is manageable,” he argues. The fund has implemented trades through both cash equities and option structures such as risk reversals, selling puts and buying calls. Writing calls and selling straddles has added to returns across several stocks and sectors.

Elsewhere in financials, Sissener views insurers as a beneficiary of higher interest rates, which reduce the cost of funding guaranteed policy returns for Norway’s Storebrand, a firm that boasts double digit growth rates and has a capital surplus. Storebrand has been a core holding for some years as has UK-listed Prudential, though it no longer appears in the top five because spinoffs have shrunk the position size. Prudential spun off M&G and Jackson Financial but remains a high conviction position and Sissener judges that, “The value of the Asian franchise is still not being reflected”. 

Other longs include Oslo-listed classified advertising group, Schibsted, which has for a long time traded at a discount to its estimated sum of the parts valuation. There could be several catalysts for unlocking this value: “Selling Adevinta would make it a pure play on the Nordic region. Market normalization puts it on a low valuation of six times 2021 EBITDA, and five times 2022 EBITDA. Retail demand should increase,” says Sissener.

Shorts 

Net exposure has broadly ranged between 40% and 60% this year (though it can sometimes briefly be higher or lower around option expiries). It has been reduced by index shorts, mainly in the S&P 500, Europe’s Stoxx 50 and Oslo OSE indices. The UK equity market, which has performed relatively well, has not been shorted.

Single stock shorts have included electric vehicle maker Tesla, the Swedish property company SBB and Scandinavian Airlines. “We expect that SAS could go bankrupt or be recapitalized at a very low price. The position was small partly because it is has become hard to borrow the stock,” says Sissener.

There is also a small long position in airline Flyr. “Flyr could now benefit from other airlines’ problems such as strikes since it has no unions to reckon with. Customer satisfaction is high, and at current market value the company  makes about four times as much money per plane than local rivals. The current share price offers option value,” argues Sissener.

ESG

Sissener acknowledges that the diversified miners are cheap, but does not currently own them, partly due to thermal coal exposure in some cases. Sissener’s ESG policy avoids firms with over 30% of revenues from thermal coal.

In common with many asset managers in Norway, Sissener uses the Norges Bank exclusion list as a starting point for its ESG policy and is increasing its own ESG research efforts as most of the firm’s funds are reporting under SFDR article 8. The ESG policy need not exclude all fossil fuels altogether: “We expect that fossil fuels will remain part of the energy mix for 10, 20, 50 or even 100 years, and have also selected oil firms that are transitioning their business models towards renewables,” says Sissener. 

Though ESG and green technology stocks have seen a significant selloff, Sissener is not yet ready to try and pick winners in the space. “When that time comes, we would rather be in supply chain and service companies than execution companies,” says Phillippe Sissener.

Outlook

Sissener Canopus has not made a completely wholesale shift out of growth stocks: there is still some exposure to semiconductor makers, though the manager has reduced exposure and sold call options against them. The approach is flexible and opportunistic in terms of style exposures: “We expect to rotate back towards quality sustainable growth names when there are signs of inflation and interest rates stabilizing. We see a narrowing valuation gap between growth and value and are ready to switch when the time is right. We are more likely to increase in Nordic Semiconductor, given the valuation gap with US peers. We expect that inflation is likely to come down and that most interest rate hikes are now priced in. We will not have the same inflation in 2023 and definitely not in 2024,” concludes Sissener.