SKAGEN Credit EUR

A global corporate bond fund

Status report January 2015

2

SKAGEN Credit EUR A– Key numbers

Key numbers as of 31 January SKAGEN Credit

EUR A

Index

(Euribor 3m)

Return last month -0,5 % 0,0 %

Return year to date -0,5 % 0,0 %

Return since inception (30.05.14) -2,9 % 0,1 %

Current yield* 2,8 % 0,1 %

Average maturity (WAM) 1,1 0,25

Average life time (WAL) 3,5 N/A

Average credit spread (OAS)** 380 bps N/A

*Current yield changes from day to day and is no guarantee of future return ** Average option adjusted spread on the investments, cash excluded

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Portfolio managers’ comments

• Continued Russian unrest and the low oil price, a left wing election victory in Greece

and a decision of quantitative easing in the Eurozone. These are but a few of the

events that took place in the financial markets in January. Pricing on corporate bonds

has not changed substantially last month, but there have been negative

developments. The credit market seems more stable at the end of January than it did

at the end of December.

• In general the yield on investment grade corporate bonds is currently very low,

particularly in core Europe. In order to find attractive risk/reward and to maintain good

risk diversification we have more investments in emerging markets, southern Europe

and the UK. In January we have reduced our exposure to Russia because of the

continued unrest from the Ukraine conflict and because the negative trend for the

Russian economy has continued.

• Companies like the Italian car maker Fiat, the Portuguese energy provider EDP and

the Indian mobile phone company Bharti Airtel have contributed positively during the

month. On the negative side we find offshore services provider Seadrill, the Brazilian

oil producer Petrobras and the Canadian train and plane maker Bombardier.

• All in all the fund posted a decline for the month because of the market unrest. The

average credit spread increased from 375 basis points to 380 basis points during the

month.

4

The SKAGEN Credit investment universe

SKAGEN Credit picks bonds both from the investment grade and the high yield spectrum

with a high risk adjusted return potential. Minimum 50% investment grade.

5

Country diversification

Developed markets: 57 %

Emerging markets: 36 %

Cash: 7 %

India; 6%

Russia; 5%

Brazil; 8%

Turkey; 7%

Czech Republic; 4%

Greece; 2%

Nigeria; 2%

Hong Kong; 3% Canada;

8%

Sweden; 6% Portugal; 4%

United States; 6%

Netherlands; 2%

France; 4%

Italy; 4%

Denmark; 3%

Norway; 3%

United Kingdom;

10%

Finland; 2%

Switzerland; 3% Cash;

7%

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Sector and rating distribution

Investment grade: 57 %

High Yield: 43%

Average rating: BBB-

Cash; 7%

Bank og finans; 21%

Defensive konsumvarer;

5%

Energi; 16% Defensive

konsumvarer; 4%

Inntektsavhengige

forbruksvarer; 6%

Kapitalvarer, service og transport;

17%

Nyttetjenester; 8%

Råvarer; 14%

Telekom; 4%

AA (Cash); 7%

BBB; 53%

BB; 35%

B; 7%

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Interest rate duration and time to maturity

Average time to maturity: 3,5 years

Interest rate exposure and denominated currency of bonds (before currency hedge)

Credit exposure - time to maturity profile on bonds

Currency Bond denominated Interest rate duration

USD 49% 0,9 years

EUR 29% 1,6 years

GBP 18% 1,2 years

NOK 4% 0,1 years

Sum Fund 100% 1,2 years

7%

15%

60%

13%

5%

0%

10%

20%

30%

40%

50%

60%

70%

Cash 1-3 year 3-5 years 5-7 years 7+ years

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Top 10 investments

Company Country of risk Credit rating* Percent of fund

Energias de Portugal Portugal BB+ 4,3 %

Bank of Baroda India BBB- 4,3 %

Fiat Italy BB- 4,2 %

Bombardier Canada BB- 4,2 %

Braskem Brazil BBB- 4,1 %

EP Energy Czech Republic BBB- 4,0 %

Akbank Turkey BBB- 3,9 %

Lafarge France BB+ 3,9 %

Gazprom Russia BBB- 3,7 %

Petrobras Brazil BBB- 3,7 %

Sum top 10 40 %

* Average bond rating

SKAGEN Credit –

Picking the best

bonds from the

global orchard

Fact sheets for some portfolio holdings

10

World leader in building materials. Cement (no.1), concrete (no. 4)

and construction aggregates (no.2). Plans to merge with Holcim in

2015.

Lafarge

Triggers:

• Planned merger with Holcim will lead to investment grade rating

• Sell of non-core assets to reduce debt-level

Risks:

• Merger fails

• Cyclical business segment

Domicile: France

Sector: Construction materials

Rating: BB+

Maturity: 2018

Position: 3,9 %

Spread at purchase: 185 bps

Current Spread: 156 bps

11

Brazilian integrated oil company. Founded in 1953 as Brazil’s national oil

company. 90% of production in Brazil. Brazilian government owns of 48%

of shares and 64% of votes.

Petrobras

Domicile: Brazil

Sector: Energy

Rating: BBB-

Maturity: 2018

Position: 3,7%

Spread at purchase: 214 bps

Current Spread: 550 bps

Evaluation:

• Solid reserves

• Governmental support

• Highly unpopular

Risks:

• Heavy capex program followed by increased debt

• Spread follows Brazilian government spread

• Ongoing corruption case

The company struggled in 2014 with the low oil price, high investment

program, low cash flow and an ongoing corruption case. Due to these

factors, the company is more unpopular than ever. The management is

now addressing these issues and we see the opportunity of a recovery

going forward. We find the current pricing very attractive in relation to the

company risk.

12

Braskem is on of the largest petrochemical companies in the

Americas. 38 industrial plants spread across Brazil, United States,

Argentina and Germany.

Braskem

Domicile: Brazil

Sector: Chemistry

Rating: BBB-

Maturity: 2021

Position: 4,1%

Spread at purchase: 290 bps

Current Spread: 413 bps

Evaluation:

• Diverse customer base and strong distribution capabilities

• Dominant position in the petrochemical market

• Declining debt levels

Risks:

• Rating downgrade of Brazil

• Volatile raw material prices – affect earnings

13

Turkish commercial bank active within various client categories. 3rd

largest in Turkey with around 1000 branches in Turkey as well as

overseas business in Germany and Dubai. Strong owner in the

Sabanci family, holding a 49% post in the company.

• Diversified Turkish loan portfolio with Small & Micro loans growing

Akbank

Domicile: Turkey

Sector: Financials

Rating: BBB-

Maturity: 2017/2018

Position: 3,9%

Spread at purchase: 220/260 bps

Current Spread: 234/253

Evaluation:

• Attractive levels, punished for being Turkish

• Good asset quality and funding situation

Risks:

• Political risk in Turkey

14

EDP - Energias de Portugal is a well diversified energy producer and

supplier in Portugal, Spain, Brazil and USA. Committed to increasing

renewable energy mix towards 2017 and beyond.

Energiaas de Portugal

Domicile: Portugal

Sector: Utility Utility

Rating: BB+

Maturity: 2017/2019

Position: 4,3%

Spread at purchase: 160/193 bps

Current Spread: 100/222 bps

Evaluation:

• Low volatility, stable business

• Better market climate in Portugal/Spain

• Good leverage situation, possible IG rating?

Risks:

• Rating influenced by Portugal – external risk

• Regulatory price limitation on energy

Hydro; 34%

Wind/solar; 35%

Nuclear; 17%

Coal; 13%

Product mix

Portugal; 45%

Spain; 25%

Brasil; 17%

USA; 9%

Result by country (EBITDA)

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Ola Sjöstrand

Ola Sjöstrand has worked in SKAGEN since 2006 as portfolio manager of

SKAGEN’s fixed income funds. He launched and has been responsible for

running the SKAGEN Krona fund amongst others. Before joining SKAGEN

Ola worked as portfolio manager at the Swedish Soya Group. A

combination of strong analytical skills and investment experience applying

SKAGEN’s investment philosophy puts Ola in a strong position to find good

investment cases for the fund. Ola holds a BSc in Business Administration

and Economics.

Tomas Nordbø Middelthon

Tomas Nordbø Middelthon has worked in SKAGEN since 2010, both as a

risk manager and more recently as portfolio manager of SKAGEN’s fixed

income funds. Before that Tomas worked within financial services in Statoil

implementing financial risk management tools worldwide. Tomas holds an

MBA within Finance and is a Certified Financial Analyst. He has strong

analytical skills and a background from financial risk management. The

combination of risk management and technical expertise is valuable in the

screening and analysis of corporate bonds and portfolio construction.

The portfolio managers

The portfolio managers draw on their expertise in the fixed income markets, as well as SKAGEN’s equity fund managers’

long experience of successful stock-picking. They have long-standing and complementary experience ranging from fixed

income management to company analysis, risk management and trading.

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Unless otherwise stated, all performance data in this report relates to class A units and is net of fees. Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager’s skill, the fund’s risk profile and subscription and management fees. The return may become negative as a result of negative price developments.

SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers’ viewpoint at a given time, and this viewpoint may be changed without notice. The report should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this report or are part of the fund's portfolio.