15 September

Monthly reports August 2020

Equity Funds

Comments from the fund managers
The stock market continued its positive development during August, driven by the report period, which continued in the same spirit as during the previous month with overall positive reports. This gave fuel to the risk-on market which we have seen since the bottom in March. Fed chairman, Jerome Powell, gave a speech at the end of the month where greater leeway around the central bank’s target was announced, leaving more room for the Fed to keep interest rates low for some time to come. Despite historical GDP declines, U.S. home sales held a record pace in July with the highest sales rate and price increase since before the financial crisis. Hurricane Laura hit parts of the United States, but without any major reactions from the stock market as the S&P500 hit a new all-time high at the end of the month. The spread of the virus is growing in different parts of the world, but judging by statements from leaders of several countries, further lockdowns are not in question due to their consequences to the economy. The United States declared that it would consider giving a vaccine a fast lane for a quicker way to the market to meet the increased threat.

Simplicity Norden
Simplicity Norden had a return of 1.3% during the month, mainly driven by positive contributions from the fund’s industrial and investment companies accompanied by the forest companies who also had a good month. Among the industrial companies, both Kone (FI) and Volvo were strong contributors thanks to positive sentiments from analysts and a generally more positive market sentiment that raised the valuations for industrial companies. Our holdings in the investment companies Investor and Industrivärden both had a return in excess of 6%. The forest companies’ good performance was wide over the line, but led by UPM-Kymmene (FI), whose cost-cutting plan was liked by the market. The fund slightly raised its weight in the forest companies through increased positions in Holmen and BillerudKorsnäs in particular. At the same time, healthcare companies were reduced slightly after sliced positions in Orion (FI), SOBI and Coloplast (DK).

Simplicity Sverige
Simplicity Sverige rose by 2.4% in August. The forest companies were positive contributors, especially through Stora Enso and SCA. The latter announced a shift in operations from production of publication paper to investing in pulp used in the production of packaging cartons and hygiene products, two more rapidly growing product segments. The fund’s game developers Embracer and Stillfront both released reports in August that showed tremendous growth driven by acquisitions and the pandemic. Compared to the corresponding quarter of 2019, sales rose by nearly 150% for Stillfront and 81% for Embracer and the companies’ shares rose by 9% and 21% respectively during the month. The entertainment industry was also on the plus side among the changes in the portfolio, where Nordic Entertainment Group was brought in as a new larger holding of about 2%. Investor was decreased from a high level but remains the fund’s largest holding. Industrials increased slightly through investments in Atlas Copco and Epiroc and a new smaller stake in Sweco.

Simplicity Småbolag Sverige
The fund’s return in August ended at 4.5% which was in line with the market. The game developers Embracer and Stillfront were lead contributors, together representing about 5.5% of the fund. The fund’s e-commerce companies, which have become a theme of the fund during the spring, also had a good month. Boozt, the web-based retailer of clothing and footwear, released a great report that showed a successful outlet operation and the company’s forecast for the year was raised. Lyko, the online beauty shop, also surged by over 40% during the month after the company announced expansions to four new countries. Additional holdings with online sales are Byggmax, Dustin and BHG Group (Bygghemma). The fund took a small stake in the IT company HiQ just before the takeover offer from Triton came and the share was sold shortly thereafter with a return of 33%. The fund’s underweight in the real estate sector favored the fund’s return relative to the market during the month, but the sector’s weight in the fund was nevertheless increased through the purchase of Balder, Nyfosa and Diös. The purchases were financed by the disinvestment of the pharmaceutical company SOBI amid its volatile journey during the year and a weak quarterly report.

Simplicity Småbolag Global 
The fund’s performance in August was 1.4%, which was slightly lower than for the market.
On the positive side, the fund’s holdings in the construction industry continued to develop strongly. Gibraltar Industries (US), TopBuild (US) and Morgan Sindall (UK) released reports that were well above expectations and the shares rose by between 15% and 22%. On the negative side, it was mainly the Asian holdings which underperformed, including Frencken (SP) which fell by 20% after disruptions in production facilities had a negative impact on sales and earnings. The changes in the portfolio consisted of increased weight in transport companies through the purchase of Marten Transport (US) and Landstar Systems (US). A new holding is IT-company Sykes (US), which despite operations in the fast growing area of customer care and CRM is only valued at 14 times the expected earnings for the year and 1.6 times the book value. The purchases were mainly financed by reduced positions in Cogent (US), Uni-President China (CN) and by the divesture of Sonoco (US).

Simplicity Norden
Month: 1.2 %
YTD: -6.7 %

Simplicity Sverige
Month: 2.4 %
YTD: -4.3 %

Simplicity Småbolag Sverige
Month: 4.5 %
YTD: -0.2 %

Simplicity Småbolag Global
Month: 1.4 %
YTD: -16.8 %

All figures are presented in currency SEK.

 

Fixed Income Funds

Comments from the fund managers
In August, Swedish GDP figures showed that the Swedish economy declined by just over eight per cent during the second quarter of 2020. This was in line with what we have seen in the rest of the world and did not cause any major market reactions. During the beginning of the third quarter, a number of datapoints have indicated a recovery in economic activity. However, much of this increase can be explained by pent up demand from the previous quarter and the future prospects continue to be associated with great uncertainty. It is also clear that the recovery will to a large extent depend on continued support from both fiscal and monetary policy. In Japan, Prime Minister Shinzo Abe announced his intention to resign due to health problems, and in the United States, the US election campaign kicked off with the Republican- and Democratic conventions. The international stock markets had a strong development during the month, while long-term bond yields rose.

In his speech at the annual central bank conference in Jackson Hole, Fed Chairman Jerome Powell announced that the Fed’s goal is for inflation to reach two percent over time. This means that the Fed will accept a period of higher inflation than the two percent target if this happens after a period of lower inflation, which is the case right now. In practice, this means that the Fed signals that interest rates will be low in the near future even if inflation picks up. The same message has been communicated by various representatives of the Swedish Riksbank that have made statements indicating that inflation may be allowed to overshoot the inflation target without causing any action in the form of, for example, a policy rate hike. The Riksbank continued with its corporate certificates purchases during the month and also announced that they have hired a person who will be responsible for corporate bond trading. In the minutes of the European Central Bank (ECB) meeting in July, members of the Executive Board emphasized the importance of having extensive flexibility in order to deal with unforeseen events.

The credit markets continued to develop strongly and in bonds with high credit ratings, credit spreads are in many cases back at the same levels as before the Corona crisis. However, bonds with credit ratings of BBB+ or lower have not fully recovered, which has meant increased interest for this segment as investors have been looking for investments with higher yields. The airline SAS presented a new proposal for refinancing, which, among other things, contained more favorable terms for bondholders, which caused the prices of the company’s bonds to rise sharply. Simplicity has participated in the group of bondholders who have negotiated the new terms with the company and is thus behind the proposal, which will most likely be approved. The reinsurance company Sirius announced that they have agreed on a merger with Third Point Reinsurance, which will remove the uncertainty surrounding the ownership situation in Sirius. This message was also well received by the market. In the primary market, activity picked up considerably during the second half of the month as a large number of companies issued new bonds. Simplicity participated in issues in the Swedish real estate companies, K2A, Svensk Fastighetsfinansiering and Intea, as well as in the Norwegian transport company Wallenius Wilhelmsen.

All funds had a strong performance during the month as they benefited from declining credit spreads and a strong performance in certain individual bonds such as SAS and Sirius. Simplicity Likviditet rose by 0.31% and has now recovered the entire draw back since mid-February. Simplicity Företagsobligationer and Simplicity Global Corporate Bond both rose by 1.72% while our new fund Simplicity High Yield which started on August 14 rose by 1.03%.

 

Simplicity Likviditet

Performance YTD: 0.20%

Yield net of fees: 0.6-0.7%

Duration: 0.18 years

Maturity profile: 1.08 years

 

Simplicity Företagsobligationer

Performance YTD: -2.19%

Yield net of fees: 2.5-2.6%

Duration: 0.96 years

Maturity profile: 2.75 years

 

Simplicity Global Corporate Bond

Performance YTD: -3.24%

Yield net of fees: 4.05-4.15%

Duration: 1.78 years

Maturity profile: 3.15 years

 

Simplicity High Yield

Performance YTD: 1.03%

Yield net of fees: 3.40-3.50%

Duration: 1.20 years

Maturity profile: 3.23 years

All figures are presented in currency SEK.

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