Portfolio Managers comments
Despite a slow start due to the holiday season, August became a busy month. The recovery in the global economy continued, supported by lifted restrictions, which contributed to increased consumption of goods and services. At the same time, there are a number of challenges that may threaten future economic growth, such as an increased spread of the coronavirus, rising inflation and component shortage in certain industries. In China, profit growth among domestic companies seems to have slowed, which can be seen as an indication of a declining growth rate in the Chinese economy. However, one must remember that the Chinese economy did not fall as sharply as other countries during the pandemic. At the same time, the Chinese authorities continued to put pressure on companies by indicating further regulations. The US retreat out of Afghanistan led to increased political tension in the Middle East as the Talibans quickly took control of the country. In Sweden, Prime Minister, Stefan Löfven, announced that he intends to resign in connection with the Social Democrats’ party congress later this year. The UN’s climate panel IPCC published its latest climate report which shows that global warming continues to increase and that we risk exceeding the 1.5-degree target within 10-20 years. To deal with the challenges we face, major changes will be required, which will also affect the financial industry.
In a speech at the annual central bank conference in Jackson Hole, Fed chief, Jerome Powell, discussed the conditions for monetary policy. Although he chose his words carefully, he indicated that tapering can begin before year end, given that the economy continues to develop well. At the same time, however, he emphasized that such a decision depends on incoming data confirming the recovery. He also said that a possible change in the policy rate is a separate decision, which means that a tapering of asset purchases will not automatically be followed by an increased interest rate. Higher employment and a sustained inflation rate of more than two per cent will probably be required before a rate hike can take place. The minutes of the ECB’s policy meeting in July did not contain any news on how the ECB’s monetary stimulus measures will be handled in the future. Most of the discussion seems to have been about what the ECB’s new inflation target, which means that inflation can be temporarily allowed to exceed two per cent, will mean for the bank’s communication about future policy rates.
The credit market benefited from strong corporate earnings and inflows into corporate bond funds during the summer, which led to declining credit spreads. In the real estate industry, the consolidation trend continued when Castellum placed a bid on Kungsleden. Castellum also increased its stake in the Norwegian real estate company Entra, which once again fueled speculation that Entra will be used as a bargaining chip in a larger context. After a quiet start to the month, the primary market activity picked up in mid-August as many companies wanted to take advantage of the strong market to issue new bonds. Simplicity participated in issues in the wind power company Øeyfjellet Wind, the insurance company Storebrand and the container shipping company Wallenius Wilhelmsen.
All funds had a strong month. Simplicity Liquidity, Simplicity Corporate Bonds and Simplicity Global Corporate Bond increased by 0.10%, 0.39% and 0.38% respectively. Simplicity High Yield rose by 0.70% and has now risen by more than 10% since the fund started in August 2020, while the fund’s assets have reached around SEK 300 million.
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Performance YTD: 0.58%
Yield net of fees: 0.20-0.30%
Duration: 0.17 years
Maturity profile: 1.36 years
Performance YTD: 3.11 %
Yield net of fees: 1.40-1.50%
Duration: 1.15 years
Maturity profile: 3.22 years
Simplicity Global Corporate Bond
Performance YTD: 3.84%
Yield net of fees: 1.80-1.90%
Duration: 2.58 years
Maturity profile: 3.42 years
Simplicity High Yield
Performance YTD: 5.61%
Yield net of fees: 2.90-3.00%
Duration: 1.55 years
Maturity profile: 3.31 years
Real estate shares continued to develop very strongly during the month, which in addition to Simplicity Fastigheter also benefited Simplicity Norden, Simplicity Sverige and Simplicity Småbolag Sverige as all three are overweight in the sector. For instance, Corem rose by more than 20% after the takeover of Klövern was liked by Nordea’s analysts who see synergies in the merger. Catena, also large within logistics properties, also steamed on with a ready-made construction plans of a new facility for PostNord. Addlife, also holdings in the Nordic and Swedish funds, rose sharply after buy recommendations from analysts who see good opportunities for continued growth. The health care company’s stock has risen by more than 144% over the past year. In Simplicity Norden, Danish firm Matas rose by about 17% after the company raised its forecast for the year and introduced a new growth plan. Otherwise, consumer companies generally had a slightly weaker month. During the month, reports of a weaker sentiment among consumers came from the US as prices are seen as high. American consumer companies generally stayed unchanged in Simplicity Småbolag Global, which nevertheless performed well thanks to the IT companies, led by the high-tech digitalization company Perficient, which rose by 26% in August. The company is also the fund’s largest holding.
Stock of the month
Hexatronic manufactures fiber optical communication products. Mainly cables that are buried in the ground to get internet to houses and homes. In Sweden, we are a little spoiled with this technology as the fiber expansion has come a long way compared to other countries. Hexatronic wants to change this and are expanding and growing largely abroad. The company has for long had an explicit acquisition strategy and last month 2 Australian companies were acquired. However, the growth is not only acquired. The latest report, released in August, showed organic growth of 38% and the profit more than doubled compared to the corresponding quarter last year. At the end of the month, a major deal was reached with Ting Internet for fiber expansion in the United States, one of Hexatronics’ main growth markets, causing the stock to rise further to a total of 49% during the month. The development particularly benefited Simplicity Småbolag Sverige, which has a larger position in the company which is also found in Simplicity Sverige.
Global developments in brief
Stock markets around the world remained affected by news of the virus spread and monetary policy during the month. The spread of the delta variant of COVID-19 caused some stock market worry, although without any sustained drop. The world’s central banks swung at a slow pace towards tighter monetary policy as the recovery has been sustained and inflation is high. At the end of August, American Fed had a well-balanced message of gradual tapering of the QE but maintained low interest rates, which was liked by the markets. At the same time, the Bank of England signalled that higher-than-expected inflation warrants cautious wind down of stimuli and in South Korea interest rates were raised because of financial risks. India, Mexico and Brazil are also grappling with above-tolerance inflation.
Moreover, the companies’ earnings reports during the month followed the same pattern as earlier in the summer and showed a continued strong recovery. For many companies, however, the component shortage has continued, which led Scania and Volvo Cars, among others, to pause production during the month. A shortage of semiconductors and other inputs is also believed to be a reason behind falling US PMI and other measures of corporate optimism such as Ifo’s measurements in Germany.Tillbaka till Nyheter