11 January

Monthly Report December 2021

Fixed Income

Portfolio Managers comments

During December, the new mutation of the Corona virus, Omikron, continued to cause problems as it proved to be more contagious than previous variants. This has led to an increased spread of infection, which has led to further shutdowns and restrictions around the world. In the market, however, the risk appetite increased after early studies indicated that Omikron seems to lead to a milder course of the disease and that fully vaccinated people have good protection against serious illness. In the United States, President Biden suffered a setback when Democratic Senator Joe Manchin declared that he was not willing to vote for the “Build Back Better” package. Although it is likely that some form of solution may eventually fall into place, the situation creates uncertainty as the investments in, among other things, infrastructure that the package contains would contribute to the economic recovery. In China, the authorities implemented easing monetary policy measures by lowering banks’ reserve requirements as well one of their policy rates. The action was taken after statements from different politicians about the need of policy support.

In conjunction with its policy meeting in December, Fed announced, as expected, that they will taper their asset purchases at a faster rate than previously indicated. This  means that the purchases will be terminated by mid-March 2022. What was more surprising however, was that according to the so called “dot-plots”, the Fed members now expect three interest rate hikes in 2022. However, the market has already discounted a number of rate hikes and market reactions were therefore moderate. Both the Bank of England and Norges Bank raised their policy rates, which was somewhat unexpected as both countries introduced stricter restrictions following increased spread of infection. The ECB announced that the asset purchase program launched in connection with the outbreak of the pandemic will end in March 2022. However, to mitigate the effects of this measure, ordinary bond purchases will be increased over a six-month period. The ECB also stated that it still considers the higher inflationary pressure to be of a temporary nature.

The increased risk appetite also affected the credit market, which recovered after a weaker development in recent months. The primary market activity slowed markedly as many companies chose to postpone their plans to issue new bonds in light of the uncertainty that prevailed at the end of November and the beginning of December. The reduced supply of new material led to an increased demand for bonds in the secondary market, which caused prices to rise. As expected, Balder’s mandatory bid for Entra received a low degree of acceptance from shareholders and resulted in the credit rating agency S&P deciding to revise its outlook for Balder’s credit rating from negative to stable. In China, the debt burdened real estate company Evergrande ended up in formal default for the first time when they failed to make coupon payments on two outstanding bonds. The company is heading towards a reconstruction and Chinese authorities have taken a number of actions to mitigate the effects of such an event. During the month, Simplicity participated in issues in Ålandsbanken, Aberdeen Asset Management and Elekta, among others.

All funds benefited from the positive sentiment in the market. Simplicity Likviditet gained 0.05% while Simplicity Företagsobligationer, Simplicity Global Corporate Bond and Simplicity High Yield rose by 0.32%, 0.66% and 0.53%. When we summarize 2021, it has been a good year and all funds have generated returns that have been better than expectations in relation to their management strategies.

 

Simplicity Likviditet
Performance YTD:  0.60%
Yield net of fees: 0.30-0.40%
Duration: 0.21 years
Maturity profile: 1.20 years

 

Simplicity Företagsobligationer
Performance YTD: 3.40 %
Yield net of fees: 1.80-1.90%
Duration: 1.10 years
Maturity profile: 3.36 years

 

Simplicity Global Corporate Bond
Performance YTD: 3.78%
Yield net of fees: 2.10-2.20%
Duration: 1.89 years
Maturity profile: 3.48 years

 

Simplicity High Yield
Performance YTD: 6.93%
Yield net of fees: 3.70-3.80%
Duration: 1.56 years
Maturity profile: 3.43 years

 

Equity Funds

Fund developments 

Shares rose broadly during the month with the exception of the real estate sector. Simplicity Fastigheter, however, performed very well  relative to the market and ended the month  close  to  unchanged with a return of  -0.6%  thanks to  successful stock choices with good development for  KMC  Properties,  Cibus Nordic Real  Estate,  Annehem  Fastigheter and Studentbostäder I Norden. For the home market funds Simplicity Norden,  Simplicity Sverige and Simplicity Småbolag Sverige, industrial companies developed  particularly strongly. Nobina  rose sharply in all three funds after  takeover bids with a premium of  31%. Acquisitions were also behind the rise in Trelleborg, after Japanese Yokohama showed interest in the company’s tire division. IT consultant Addnode  rose  after buy recommendation from Handelsbanken, which likes the company’s growth opportunities abroad, and the stock contributed in particular to the development in Simplicity Småbolag Sverige where it weighs about 1.9%. During the month, the large caps generally performed better than the small companies, especially the industrial giants ABB, Sandvik, Atlas Copco, Volvo and Assa Abloy contributed to higher returns in Simplicity Norden and Simplicity Sverige. Simplicity Småbolag Global ended a  good year with continued good development. The holdings Quanex, ExlService, Evertec, Amphastar and Europris among others contributed to the fund extending the difference in returns to the index to 11.5% for the full year 2021. 

Stock of the month

Cibus Nordic Real Estate is a specialized real estate company focused on the grocery sector. The properties house both small and large grocery stores, mainly in Sweden and Finland, and the company has also expanded to the Norwegian market during the year.  At the beginning of the month, Cibus raised its growth target  based on the large acquisition opportunities  and  that  the market for food and grocery properties is strong. Plans to double the property portfolio and achieve a better credit rating received thumbs up from both analysts and the marketcausing the stock to rise by 18% in December. In order to  finance the growth,  the company carried out a directed share issue that  Simplicity  participated in. The share currently weighs 2.1% in Simplicity Norden, 2.1% in Simplicity Sverige, 2.8% in Simplicity Småbolag Sverige and 2.2% in Simplicity Fastigheter. 

Global developments in brief 

Stock markets remained affected by news about the omicron variant. As reports on mild symptoms of infected people continued at the beginning of the month, markets rose, but as the infection rate rose and new restrictions were introduced, the curves turned downwards again. The ambivalent stock market mood also applied to the news about central banks and inflation. As usual, the main focus was on the Fed, which signaled a faster tapering and three rate hikes next year. Markets initially reacted positively on the basis of reduced risk of inflation, but later negatively as the communicated rate increases challenge valuations. The many turns for President Biden’s major reform package at the end of the month also contributed to increased volatility, as the package had to be restructured and renegotiated to possibly be approved in the coming year. 

Virtually all equity funds showed positive developments, with Simplicity Småbolag Global topping the list with an increase of +4.2%. Simplicity Småbolag Sverige, Simplicity Sverige and Simplicity Norden went up by + 2.3%, +3.0%  and +4.0% respectively.  Simplicity Fastigheter ended at -0.6%. 

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