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Article / 03 October 2016 at 9:35 GMT

Portfolio Update: Novo Nordisk to trade at a discount?

Head of Equity Strategy / Saxo Bank
Denmark
  • Negative sentiment, US partner loss could send Novo Nordisk lower
  • ECB policy changes could lead to revaluation of major insurers
  • Long JPMorgan Chase position tied to rate hike expectations

Novo Nordisk
Novo Nordisk HQ, Denmark: The high-profile pharma firm may see its shares head lower on increasingly negative news sentiment and the loss of a US partner. Photo: Novo Nordisk

By Peter Garnry

We try to be dynamic and seize opportunities whenever they arise. As such, we have added several new positions to our equities portfolio of late.

The most controversial change in our portfolio is our new short position in Novo Nordisk (NOVOb:xcse) because some clients missed the fact that we had reversed our position from long when the news hit that the company had lost one of its partners in the US. 

In addition, we felt that the news sentiment is getting increasingly negative and that Novo Nordisk shares could easily overshoot to trade at a discount to its diabetes peer group but also large pharmaceuticals in general. Our target is 250 as we believe long-term buying interest will arise at these levels. 

The long-term outlook for insulin drugs is still strong as China will drive growth over the coming decades.

Novo Nordisk weekly price chart over the past five years:
Novo Nordisk

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Source: Saxo Bank 

Other recent positions are long Aegon (AGN:xams) and Generali (GASI:xmil) as we are betting on the European Central Bank ending its current trajectory on monetary policy; we believe it may begin to look at how to steepen the yield curve a bit while maintaining an overall accommodative monetary policy. 

This could lead to a repricing of insurance companies in Europe, which are one of the highest-yielding assets in the developed equity market. 

We have also added a long position in Seadrill (SDRL:xosl) as a small exposure should the oil price find equilibrium above $50/barrel in Brent post- the recent Opec deal. In addition, we have added a long position in Ralph Lauren (RL:xnys) betting on better-than-expected earnings. 

Lastly, we have gone long Teva Pharmaceuticals (TEVA:xnys) and Nets (NETS:xcse).

We have tried long interest rate plays before with a long position in Bank of America, but recent declines triggered our stop. Today we will try again with a long position in JPMorgan Chase with a wider stop and longer horizon (higher target price), betting on rising rates in the US as we roll into in 2017. We will explain the trade in greater detail in a separate email soon.

Open positions:
Open positions
Source: Saxo Bank 

Portfolio performance

Following a 5.6% drawdown the portfolio has come back over the past four trading sessions driven by gains in our long positions in Betsson, Deutsche Bank, Glencore and short position in Novo Nordisk. 

While we have been limiting our drawdowns to less than 6% across four different pullbacks in the equity market since late June, it will be difficult at times to limit at these levels given the leverage under which we are operating the portfolio. 

We will, however, try and be dynamic and hedge downside exposure quickly if events unfold.

— Edited by Michael McKenna

Peter Garnry is head of equity strategy at Saxo Bank

03 October
AlexF AlexF
Peter again why is the global saxo equity pick strategy keeping Novo as largest position, at least I would expect them to reduce the position....can you answer the question ? Or anyone?
03 October
Dimitrios Tamvakas Dimitrios Tamvakas
I dare to say that Novo short position is a chart driven trade with a 6-7 % target return and a relatively tight stop. In the long term Novo is a buy at current levels and this exactly is reflected in the Global Saxo equity portfolio. The portfolio may even add in the long position at current levels.
03 October
Peter Garnry Peter Garnry
@AlexF it may be a bit confusing, but this equity portfolio is a discretionary equity portfolio and not model driven per se. Some positions might be from a model, but most positions are driven by events taking place in equity markets. This portfolio is much more driven technical developments and narratives around our macro views. The strategy you are referring to is our equity factor model which is purely model driven and here Novo Nordisk continues to rank high due to best-in-class ROIC. Having said that we are running the model today with updated data from September - Novo Nordisk may not be in the top list any longer due to weakening momentum.
03 October
Peter Garnry Peter Garnry
@Dimitrios you are absolutely right. We flipped our view on Novo Nordisk short-term acknowledging the sentiment direction and because many technical indicators were flashing no support for a long position. As I write in today's update we are ending our short in Novo Nordisk if the price goes to 250 because then the valuation may entice longer term investors to increase long exposure.
03 October
AlexF AlexF
Thanks Peter for the answer I do see the difference and understand. Would be great to create a strategy in saxo that follows 100% your portoflio (I would invest in it for sure). On the other hand global sotck picker could be more dynamic especially when the Head of equity is concerned and makes a short reco on the top holding I am sure you get my point. This is my feed-back as investor in the strategy and thanks again for the great work.
03 October
AlexF AlexF
Dear Peter one suggestion would be to share in a easier way your portoflio to Saxo bank clients with % of each position so we could use it to rebalance ours. An excel file updated with each new position taken would be great. Not sure you are open to this but would greatly help
03 October
ChristianK ChristianK
Hi Peter. What happened to your long Samsung position?
04 October
SierraPt. SierraPt.
Hi Peter! Is this possible somehow to track this portfolio realtime? If not, can you make if followable through tradingfloor (eg. the way John Hardy does)? That'd be very helpful, especially in case of intraday trades. Thanks!
04 October
Peter Garnry Peter Garnry
@ChristianK we closed the long Samsung position a couple of days after the battery issue appeared. We booked our 30% profit as we thought the downside risks were going up.
04 October
Peter Garnry Peter Garnry
@SierraPt. we will look at it
04 October
AlexF AlexF
Would be great as per my request as well.
05 October
ChristianK ChristianK
Thanks Peter. It seems Samsung is making a comeback? Would be great with a Tradingfloor link to the portfolio so that we can follow and track it.
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