Interview

Skandia’s Lars-Göran Orrevall on favouring Japan over the US

Skandia’s new chief investment officer Lars-Göran Orrevall talks about why the Swedish pension company has shunned US equities in favour of Japan and India and what impact his appointment will have on the investment strategy.

High valuations has made the Swedish life and pension company Skandia take a step back from US equities and reduce its US equity exposure to only 2 per cent of the portfolio. The shift has been made gradually but the allocation was cut further at the end of last year. 

“We believe that US equities are expensive, both in absolute numbers and relative to other equity markets,” says Lars-Göran Orrevall, who previously was CEO of Skandia Investment Management, its asset management arm, but took over as chief investment officer in mid-January. “We believe that the long-term returns for US equities will be significantly lower than other equity markets and other asset classes.” 

He adds, however, that Skandia’s large private equity allocation of about 10 per cent of the portfolio has a big tilt towards the US. “If we didn’t have that exposure, we probably wouldn’t have reduced it to as low as 2 per cent,” says Lars-Göran Orrevall, who was promoted to fill the gap left when Hans Sterte joined Sweden’s largest pension company Alecta.

Asked whether there really are any equity markets that are looking that attractive at the moment from a valuation point of view, Lars-Göran Orrevall points to Japan and notes that Skandia has increased its exposure to Japanese companies across all of its portfolios. 

“We think the Japanese equity market is one of few markets that looks more reasonably valued,” he says. “That’s a market that has been forgotten for about 20 years but is now undergoing many structural changes. We think the outlook for growth is starting to look a bit better, that inflation might even be on the positive side and, above all, profits in Japanese companies are looking really good. Then, there are a lot of things that are difficult - you should, for example, be aware that the Japanese central bank is buying its own equity market.”

While too high valuations so far has deterred Skandia from adding a specific allocation to Chinese A-shares, it last autumn added two active Indian equity mandates to both the collective pension portfolio as well as its multi-asset funds. Lars-Göran Orrevall notes that while it is important to keep a close eye on China in order to understand the world, India offers a more compelling investment case, particularly in the wake of the structural reforms underway. 

Skandia has a rather flexible and valuation-driven approach to investing, which Lars-Göran Orrevall says is one way of taking advantage of its long-term horizon. “We don’t have a set benchmark that stipulates a certain asset allocation. We look at whether something is cheap or expensive and then change our portfolio based on that - and not because we at some point in time decided to have a specific allocation. But you can only do that if you have a very long-term view - that’s not something you can make money on today or tomorrow. The more long-term you dare to be, the more you’re able to look at valuations,” he says.

Asked about his plans as chief investment officer and possible strategy changes, Lars-Göran Orrevall plays down the impact that his appointment will have on the investment strategy and says that it will be business as usual.

“Considering that I’ve worked here for 12 years and had the opportunity to put my mark on a lot of things, it would be very strange if I now wanted to change everything. I’m very pleased with what we’ve achieved,” he says. 

On the other hand, this doesn’t mean that Skandia’s allocation will remain unchanged. “Markets are constantly changing and so are the challenges that we’re facing. Our portfolio has changed a great deal during my time here. But it will be evolution rather than revolution,” Lars-Göran Orrevall says.

 

Read more on Lars-Göran Orrevall’s thoughts around credit markets, alternatives and how to prepare for a new investment environment in the next issue of Nordic Fund Selection Journal.