Skagen’s $4 Billion Global Fund Bets on Citi, AIG Amid Turmoil

(Bloomberg) -- Now is no time to shy away from financial services, according to Skagen AS.

The Stavanger, Norway-based fund manager is riding out the turmoil with American International Group Inc. and Citigroup Inc. as its biggest holdings and is snapping up stocks after a “heavy overreaction” following the U.K. vote to leave the European Union, according to Knut Gezelius, who manages 32 billion kroner ($4 billion) of global stocks.

“Citi is well capitalized with enormous potential for capital return,” he said in an interview Thursday. “Unfortunately the Fed's stress test of banks disappeared in the markets on Friday. The bank fell 9 percent despite fantastic capital numbers and stress test results. Completely illogical. Excellent buy opportunity for the one who knows his trade.”

The behavior of investors like Skagen can be seen in the markets. After plunging as much as 7 percent in the two days after the U.K. voted for leaving the EU, the MSCI All Country World Index has since rallied about 4 percent.

“The fund had 5 to 6 percent cash at end of May; now we have significantly less,” he said. “And there were some good buy opportunities during these days over the whole world. We've been active in the U.K., Europe, Asia and the U.S.”

Gezelius, who manages the fund Skagen Global, uses a bottom up approach looking for “unpopular, under-analyzed and undervalued” stocks.

“In this situation you have to sit back and know the value of companies and the stock,” he said. “And when the price sinks below what they are worth the long term investor should buy more. This is one of those opportunities, not when everything is peaking.”

While he is a buyer for the moment, it's a “relatively fragile market” that must take high global debt levels, weak earnings growth and political risks into account, Gezelius said.

“It's absolutely more important than ever at this moment to hold the right companies,” he said. “And be comfortable with valuations and consider downside risks.”

To contact the reporter on this story: Jonas Cho Walsgard in Oslo at jchowalsgard@bloomberg.net. To contact the editors responsible for this story: Veronica Ek at vek@bloomberg.net, Jonas Bergman