Tønsberg, Norway

I’m back in Norway this week spending time with my girlfriend and checking out the annual Slottsfgell Festival or Castle Mountain Festival here in beautiful Tønsberg – about 75 kilometers south of Oslo. Over 10,000 guests are expected for this event, including rock concerts and open bars. Drinking gets started at 2pm on Thursday – not exactly my thing but definitely a big part of this bash.

Norway, of course, has been a growing feature in my investment portfolios since May because increasingly, I’m convinced the Norwegian kroner is undervalued vis-à-vis most currencies.

Norway has a budget surplus-to-GDP ratio of 10.5% -- the highest in Europe and one of the world’s largest state pension funds valued north of $300 billion dollars. The country is rich in oil and gas and is now making a big push into renewable energy to supplement its declining annual oil and gas production.

But Norway is also home to two tremendous mutual funds denominated in Norwegian kroner.

A few years ago – prior to the credit crisis -- I recommended the Skagen Global Fund in The Sovereign Individual – the best performing global fund in Scandinavia and among the most profitable in Europe. The Fund has gained 9.3% per annum in kroner since 1999 or more than 11% in U.S. dollars. That compares to an annualized loss of 2.9% for the MSCI World Index over the last ten years. Skagen, like all non-U.S. registered funds, is not available directly to U.S. investors.

Another superb fund is the Storebrand Verdi Fund managed by Norway’s best stock-picker, Alf Inge Gjerde. I met Mr. Gjerde in Oslo in May and his track record is superb. This Fund is a Norwegian growth and value fund, unlike Skagen Global Fund. Though highly aggressive because of big stock specific bets and heavy concentration in energy, the Storebrand Verdi Fund has gained a cumulative 161% in kroner since 1997 versus 106% for the Oslo All-Share Index. Storebrand is Norway’s second-largest insurance company and manages over $80 billion in assets.

Americans can’t directly buy offshore mutual funds because of potentially onerous tax implications. However, they can defer the tax on these products through an offshore IRA or an offshore variable annuity (NMG in Zurich or Isle of Man Assusrance). Otherwise, investors outside of these tax-deferred vehicles will have to pay taxes each year on undistributed gains (assuming you have any gains) from a separate source of income; most offshore funds don’t pay year-end distributions and don’t issue a K-1 to U.S. investors.