8 July

Monthly report June 2020

Equity Funds

Comments from the fund managers

The macro economic statistics reported in June indicate that the bottom is reached, although it will be some time before we are back to pre-Corona pandemic levels. In the United States, the month’s statistics included a better than expected job recovery and improved consumer confidence and increased retail sales. Both the fact that the European and global purchasing managers’ indices are well on the way to realizing a V-formation since the beginning of the Corona crisis and that the ECB expanded its support purchase programs to support the economy further were positive events during the month, while the IMF’s new economic report was a more negative one as it paints a gloomy picture of the economic growth and forecasts a decline for global GDP by 5 percent this year. As the states’ extensive crisis support is rolled out, indebtedness in the world is rising, a topic that certainly will get more attention in the future once the pandemic is under control.

Stock markets developed largely sideways and continued to show high volatility during the month after the virus spread increased locally around the world and concerns about a second wave rose. The options unsurprisingly point to continued elevated volatility for the rest of the year, awaiting an exciting quarterly report period and the presidential election in the United States.

Simplicity Norden
The improved macro statistics supported the industrial companies during the month, resulting in Atlas Copco, Volvo and ABB all being positive contributors in the portfolio. Telia’s news about sales discussions of its position in Turkcell was positively received by the market and the share rose by 8%. The Fund’s Norwegian salmon companies Mowi and Bakkafrost saw a sharp drop in exports to China because of rumors that the Corona virus had returned to China via Norwegian salmon. The companies’ prices initially fell but recovered after the rumor was disproved. The companies closed the month at largely unchanged prices.

Moreover, a generally weak negative development was seen broadly across grocery and healthcare companies in the portfolio. Notable changes in the fund were that holdings in healthcare and grocery companies were reduced, mainly through ICA, Axfood, Orkla (NO), Novo Nordisk (DK), Coloplast (DK) and Getinge, in favor of increased positions in the big Swedish banks SEB, Nordea, Swedbank and Handelsbanken. The fund’s return in June summarized to -1.5%.

Simplicity Sverige
The fund rose by 0.3% in June. The fund’s successful holdings in the game developers continued on their positive trend and both Stillfront and Embracer were among the fund’s top contributors following several increased recommendations. It appears that the effects of the Corona crisis are not only short-term but also contribute to the companies’ longer-term values. Among the industrial companies, ABB and Atlas Copco stood out together with Epiroc, all three of which contributed positively to the fund’s development. Epiroc, which manufactures mining machinery, received several increased recommendations from analysts who forecast good prospects for the company when the pandemic subsided. During the month, the fund increased its weight in the big banks Swedbank, Nordea, SEB and Handelsbanken, while Stillfront was slightly reduced from a high level as its valuation has risen steeply in recent times. The weight in SCA was also slightly reduced.

Simplicity Småbolag Sverige
The fund rose by 2.1% in June. Successful stock picking contributed to the positive development and game developers Stillfront and Embracer were once again strong contributors. The same was true of the holding in Boozt, an online retailer of clothes, shoes and accessories, which raised its sales forecast for the year during the month and saw its stock soaring by 32% as a result. Simplicity Småbolag Sverige had a weight of about 1.5% in the company when the forecast change was released. In the healthcare sector, which is currently relatively large in the fund, the development was relatively varied, but thanks to good development in the large holdings Bactiguard and SOBI the sector contributed positively also in June. During the month, the fund reduced its high weight in the healthcare companies Arjo, SOBI and Getinge slightly in favor of the well-timed increase in Boozt and in the real estate companies Castellum and Fabege.

Simplicity Småbolag Global
The fund’s development in June was 0.3%. Global small-caps had a generally weak development during June with exception for real estate companies. For example, Powerlong Real Estate (CN) and Safestore (GB) developed very positively in the fund. In other respects, the pattern during spring repeated itself as consumer and IT companies were the main contributors to the fund’s return. The stock of the fast food chain Wingstop (US) continued to rise during the month, finishing up 14.1% after more people have got their eyes up for the restaurant during the ongoing crisis. Like Boozt in Sweden, JB Hi-Fi (AU) also raised its forecast, after the company’s sales of electronic devices returned better than previously expected, and the share rose by 15.9% as a result. Worth mentioning about the month’s changes in the portfolio is a reduced weight in healthcare companies in conjunction with the divestment of PRA Health Sciences (US) and Biotelemetry (US) in favor of increased holdings in grocery companies, through the purchase of Sprouts Farmers Market (US) and Axfood, and transportation companies through Marten Transport (US).

Simplicity Norden
Month: -1.5 %
YTD: -10.6 %

Simplicity Sverige
Month: 0.3 %
YTD: -10.7 %

Simplicity Småbolag Sverige
Month: 2.1 %
YTD: -12.1 %

Simplicity Småbolag Global
Month: 0.3 %
YTD: -19.0 %

All funds are reported in SEK currency

 

Fixed Income Funds

Comments from the fund managers 

After a few months of strong market developments, fears of a second wave of coronavirus infections and concerns about new trade tensions between the US and China as well as between the US and Europe lead to increased volatility in June. The IMF published their new economic outlook, which painted a dark picture projecting a drop in global GDP of  five percent in 2020. The World Bank and the OECD also published forecasts with similar messages. Meanwhile, the macro figures published during the month showed a slightly more positive picture, with several different PMIs and other sentiment indicators turning upwards. However, it should be noted that the recoveries in these figures are from very low levels. The equity markets fluctuated during the month. However, eventually most of the international stock markets closed in positive territory. Long-term bond yields rose during the beginning of the month, but fell back as the uncertainty in the market increased.

During the month, the American central bank, the Fed, announced that they will start their purchases of individual corporate bonds, causing the credit markets to rise sharply. Even though the message was in line with previous communication, the announcement was well received as Fed so far only has bought corporate bond ETF:s. The Fed left its policy rate unchanged and announced that it expects the interest rate to remain unchanged until the end of 2022. The ECB also kept its policy rate unchanged and expanded its asset purchase program by EUR 600 billion and extended it until at least the end of 2022. In the press release published after the interest rate announcement from the Swedish central bank, Riksbanken, they stated that they will increase the framework for their asset purchase programme from SEK 300 billion to SEK 500 billion, to avoid an unnecessarily prolonged and deep recession. They expect the purchases to continue until June 2021. They also announced that they will start buying corporate bond under a total framework of SEK 10 billion in September. This statement was well received, as it is considered to be supportive for the Swedish credit market. The repo rate was left unchanged at the policy meeting.

The strong development in the credit markets past months continued, partly supported by the Fed’s announcement of upcoming corporate bond purchases, even though the credit markets, similarly to the equity markets, experienced higher volatility. The airline SAS presented a refinancing plan, proposing devaluation of the nominal value of the company’s bonds and conversion into equity. The proposal requires the approval of the bondholders and it is uncertain whether the bondholders will agree to the proposed terms. The primary market activity was relatively high with new issues from a large number of companies, including real estate companies.  As the real estate sector was one of the sectors with the weakest development during the market turbulence in February and March, it is interesting to see that companies in this sector are able to issue new bonds as it indicates a gradual return of investor confidence. Even SBB and Balder, the real estate companies who were subject to negative publicity in May as representatives of both companies were accused of insider trading, issued new bonds in Norwegian and Swedish kronor, respectively. Simplicity participated in issues in among others, companies such as the Norwegian salmon company Grieg Seafood, the Finnish IT company TietoEVRY and the Swedish industrial company SKF. In Simplicity Global Corporate Bond, we continued to increase our holdings in US companies while reducing the share of Nordic holdings. All funds had a strong performance during the month. Simplicity Likviditet increased by 0.43% while Simplicity Företagsobligationer and Simplicity Global Corporate Bond rose by 1.74% and 1.81% respectively.

 

Simplicity Likviditet

Performance YTD: -0.42%

Yield net of fees: 1.10-1.20%%

Duration: 0.21 years

Maturity profile: 1.08 years

 

Simplicity Företagsobligationer

Performance YTD: -4.48%

Yield net of fees: 3.2-3.3%

Duration: 0.96 years

Maturity profile: 2.84 years

 

Simplicity Global Corporate Bond

Performance YTD: -5.52%

Yield net of fees: 4.60-4.70%

Duration: 1.82 years

Maturity profile: 3.24 years

All funds are reported in SEK currency

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