Portfolio Managers comments

During the month, the volatility rose in the financial markets as the market’s focus shifted between hopes for a soft landing in the economy and fears of a sharper slowdown.

The credit rating agency Fitch lowered the US credit rating from AAA to AA+ due to weaker government finances and the recurring difficulties for politicians to agree on the debt ceiling. The Swedish GDP figures showed that the Swedish economy is developing weaker than the Riksbank’s forecasts, although the outcome was not as weak as the preliminary outcome indicated. The NIER economic tendency survey, which gives an indication of the sentiment in the Swedish economy, fell in August, which indicates that both companies and households have a more pessimistic view of the economic development. The Swedish krona remains weak and is currently traded at levels just below SEK 12 against the Euro. The weak exchange rate, which has been a problem for the Riksbank for a long time, contributes to increased inflation via rising import prices.

At the annual central bank conference in Jackson Hole, Fed chief Jerome Powell said that the strong growth means that further rate hiked may be needed. However, he pointed out that the inflationary pressure has come down and that incoming data will be decisive for how the Fed acts going forward. Interest rates rose after the speech as the likelihood of further rate hikes was deemed to have increased, but fell back after US labour market figures showed a weaker development than anticipated. ECB chief Christine Lagarde’s speech at the same conference did not provide much new guidance on how the ECB will act during the autumn. However, she emphasized that it is better to raise the interest rate too much in order to bring down inflation. In an interview in Swedish newspaper, Dagens Nyheter, the Governor of the Riksbank, Erik Thedéen, said, among other things, that he is surprised by the resilience of the economic activity and the Swedish labor market. He also mentioned that he is concerned about the high inflation in the service industry while he does not pay too much attention to falling energy prices, which the Riksbank does not have much opportunity to control by monetary policy.

The volatility increased in the credit markets as a consequence of macroeconomic development and corporate news flow. However, the high yields continued to provide support and most markets had a positive performance. Spanish bank Santander notified investors that it will not call an AT1 bond, at the first call date, later in September. The announcement did not come as a complete surprise and was already reflected in the bond price. However it does show that there are certain other risks that need to be taken into consideration when investing in subordinated bonds. Simplicity does not own any AT1 bonds issued by Santander. Heimstaden AB, which is the major owner of the residential real estate company, Heimstaden Bostad, chose to buy back outstanding bonds through a tender procedure. The offering was launched after both companies had been put under pressure from both the media and the market and was received positively. Primary market activity increased after a quiet period during the summer. Simplicity participated in new issues in Nibe, Electrolux and the Norwegian shipping company Wallenius Wilhemsen, among others.

All funds had a strong performance during August. Simplicity Likviditet, Simplicity Företagsobligationer and Simplicity High Yield all benefited from the strong development in the Nordic market and rose by 0.51%, 0.67% and 0.81% respectively, while Simplicity Global Corporate Bond rose by 0.30%.