14 August

Monthly report July 2020

Equity Funds

Comments from the fund managers
The stock market month of July was despite growing concern about a second virus wave characterized by positive news, largely supported by the company reports with mostly positive surprises, especially from the Swedish companies. Among the data, a better-than-expected job market stood out in the United States, where the number of Americans in work has increased over the past two months and contributed to increased consumption after the gloomy spring. Furthermore, China’s economy is now back on expansion, while Europe’s purchasing managers look increasingly positively about the future and the purchasing managers’ index is approaching expansionary territory. EU leaders agreed at the end of the month on the Corona crisis package and the long-term budget, creating conditions for economic improvement and security. On the negative side, however, the pandemic risks remain clear, which also affected the markets somewhat amid rising virus cases in some American states and European countries. However, news on progress in vaccine developments have counteracted this effect somewhat so far.

The trade dispute between the United States and China flared up again after the US blacklisted a few Chinese companies over human rights abuses this month. President Trump likely wants to shift focus from his response on the pandemic to his tough approach to China in order to improve his position in the upcoming presidential election.

Simplicity Norden
A very positive month, where the return ended at 3.0% after the company reports generally showed less impact of the pandemic than feared. Banks, investment companies and industrial companies performed better than stable consumer companies, e.g. with Swedbank rising by 19% after the report showed more normalized business conditions. Holdings in Kone (FI) and Volvo developed stronger than the market, where stable reporting led to increased target prices from analysts. The fund’s large holdings in Getinge and Ericsson had a fantastic month with advancements of 21% and 17% respectively after very strong reporting. Ericsson also benefits from customer rejections of its competitor Huawei due to various controversies. Among the most significant changes in the portfolio for the month, holdings in Investor, Ericsson, Getinge and SCA were increased.

Simplicity Sverige
The fund’s return for July ended at 4.7%, where the holdings’ strong reporting was behind the fund’s positive performance. In addition to Ericsson and Getinge, both of which also have high weight in Simplicity Norden, Boliden, Epiroc and Byggmax contributed strongly to the return. For both Boliden and Epiroc, a strong mining industry supported the shares. Boliden’s quarterly report during the month showed, for example, that copper and zinc production has risen well above expectations by 16% and 17% respectively compared to the previous quarter. Despite the recent price rally, Byggmax managed to exceed expectations in its quarterly report, where the “stay-at-home effect” has been more positive than expected for the company. During the month, no major changes were made to the portfolio. Profits were brought home in Boliden, Assa Abloy and Scandic Hotels, while the weight in Avanza doubled to almost 1%.

Simplicity Småbolag Sverige
The fund’s return in July was as much as 9.1%, more positive than the market’s development. Several of the fund’s major holdings reported a very strong report, and BHG Group with e-retailer Bygghemma among its subsidiaries, was the fund’s top holding during the month with a return of 33%. The company managed to exceed the high expectations on the report on the quarter which proved to be the best in the company’s history so far. Like Byggmax, the company has benefited from the pandemic’s boost to home improvement while the company’s bid on Sleepo was liked by the market. Very positive contributions to the return also came from the holdings in Sweco, Bactiguard and Addlife which all rose by 20% or more and had weights of more than 2% in the fund during the month. The fund has for a relatively long time had a large underweight in the real estate sector, which despite continued low interest rates underperformed and realized negative returns amid rental discounts and weak property value developments. This month’s changes in the portfolio included the purchase of low-valued SCA in relation to the company’s equity and increased holdings in Bactiguard, Addlife, Biogaia and Biotage, which contributed to an increased weight healthcare companies to 24%. Profit-taking and reduced positions in the hotel companies Pandox and Scandic Hotels financed the purchases together with inflows.

Simplicity Småbolag Global 
The Fund’s development for July was summarized to 1.4%, clearly better than the -0.9% change for the market. The record low mortgage rates in the United States has been positive for the housing market, where sales of new homes have risen to the highest levels since before the financial crisis. The trend benefited the fund’s holdings in the insulation company TopBuild (US) and UFP Industrial (US) which, among other things, make wall panels and plywood. Several of the fund’s subcontractors in the construction industry showed a good boost to their business with excellent growth and growing order books. In Asia, China Lesso Group (CN) rose by 39% and in Europe Lindab rose by 25% and Bravida by 8%. The Fund’s Nordic tilt contributed extra to the return mainly through Tokmanni (FI), Lifco, Thule and Tietoevry (FI). The month’s most significant changes consisted of J2 Global (US) being left in full after the company’s online media business was affected by decreased advertising during the pandemic. Strategic Education (US) was also sold at the same time as Ship Healthcare (JP) was weighted down. New holdings in the portfolio are now Tietoevry (FI) and Anritsu (JP).

Simplicity Norden
Month: 3.0 %
YTD: -7.9 %

Simplicity Sverige
Month: 4.7 %
YTD: -6.5 %

Simplicity Småbolag Sverige
Month: 9.1 %
YTD: -4.1 %

Simplicity Småbolag Global
Month:1.4 %
YTD: -17.9 %

All figures are presented in currency SEK.

 

Fixed Income Funds

We would like to take this opportunity to acknowledge the exciting fund launch that is approaching. On August 14 we at Simplicity will introduce our next fund – Simplicity High Yield. The fund will be managed by our regular fixed income management team consisting of Henrik Tingstorp, Fabian Dahl and Magnus Thyni who already manage our three other corporate bond funds. The team also includes an analyst, Johanna Ingemarson, who assists the management team. The new fund will have a Nordic focus and invest in bonds issued by companies with slightly lower credit ratings. This means higher risk but also the possibility of higher returns.

You can find KIID, fact sheet and more information on the fund on our website.

 

Portfolio Managers comments

Even though the market was in summer mood, July became an eventful month in many areas. The spread of the Corona-virus was in focus as the United States continued to report a large number of new cases and some regions in Europe chose to shut down again as the spread of new infections gained momentum. The negative news was to some extent offset by hopes that a vaccine will soon be available after a number of pharmaceutical companies reported positive outcomes in various vaccine studies. Tensions between the United States and China continued to rise as the United States ordered China to close its consulate in Houston over allegations of espionage. China responded by forcing the United States to close its consulate in Chengdu. On the domestic US political front, President Trump raised a proposal to postpone the US presidential election as he claims that it would not be safe to conduct the election under the current circumstances. However, it is highly unlikely that the election will actually be postponed as it requires a decision by both the Senate, which is controlled by the Republicans, and the House of Representatives, which is controlled by the Democrats. In Europe, the EU countries managed to reach an agreement on the EU’s long-term budget and the 750 billion Euro support fund intended for countries particularly hard hit by the Corona virus.

 

The GDP development for the second quarter of 2020 was very weak. In the eurozone, the economy declined by just over twelve per cent and in the United States by just over nine per cent. However, the weak figures were expected and the market’s reactions were thus limited. Growth in the retail sector has been surprisingly strong as consumers seem to have compensated for previously absent consumption through increased consumption now. The countries that have lost most in the past months are the ones that have shown the largest pick-ups now. The changes in Swedish retail sales have been small, which is explained by the fact that the Swedish economy has not been shut down and that consumption has thus held up better during the beginning of the crisis. The PMIs that have been published have also been somewhat stronger than expected. However, one should be aware that they are still at low levels. In the US, Fed left the key interest rate unchanged, while enforcing that although some indicators point to a certain recovery in economic activity in recent months, the risks of further setbacks remain. They also emphasized the importance of limiting the spread of the virus and the need for further fiscal stimulus.

 

In the credit markets, the strong development continued as credit spreads traded down. The Q2 reporting season is ongoing and most of the companies have reported relatively good results given the current circumstances. Activity in the primary market has been slow as we are in holiday periods and many companies are or has been in silent periods ahead of their upcoming reports. Simplicity participated in an issue by the credit management company Intrum which issued bonds in Euro. The airline SAS’s proposal to convert bonds into shares was not approved by the bondholders and negotiations are currently underway between the parties. All funds had a strong development during the month. Simplicity Liquidity increased by 0.31% while Simplicity Corporate Bonds and Simplicity Global Corporate Bond rose by 0.67% and 0.68% respectively. Yields decreased in all funds as a consequence of the strong development.

 

Simplicity Likviditet

Performance YTD: -0.12%

Yield net of fees: 0.90-1.00%%

Duration: 0.19 years

Maturity profile: 1.03 years

 

Simplicity Företagsobligationer

Performance YTD: -3.84%

Yield net of fees: 2.8-2.9%

Duration: 0.95 years

Maturity profile: 2.76 years

 

Simplicity Global Corporate Bond

Performance YTD: -4.87%

Yield net of fees: 4.30-4.40%

Duration: 1.73 years

Maturity profile: 3.08 years

All figures are presented in currency SEK.

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