Summary of the market’s focus during the month:
- Continued uncertainty about the economic outlook
The uncertainties surrounding the economic development and how it will affect inflation, central banks, and interest rates going forward remain significant. During the month, both the World Bank and OECD presented economic forecasts that paint a rather gloomy picture of the global economy, with low growth figures this year and only moderate recovery in 2024.
- Interest rate hikes and inflation
The U.S. Federal Reserve chose to keep its benchmark interest rate unchanged, but the market sentiment has shifted, and there are now expectations for further hikes by the Fed. The European Central Bank (ECB) raised rates as planned by 0.25 percentage points and signaled additional hikes in the near term. Both the Bank of England and the Norges Bank unexpectedly decided to resume rate hikes with 50 basis points as inflation picked up again. In Sweden, the Riksbank raised its benchmark interest rate by 25 basis points and indicated further increases.
- Weak Swedish krona and highly leveraged real estate sector
The combination of a historically weak Swedish krona and a highly leveraged real estate sector poses challenges for the Riksbank in determining the most appropriate course of action going forward. These issues push interest rates in different directions, making the upcoming months interesting to follow.
The development of fixed income funds
The credit markets had a volatile month, with positive contributions from high yields in the portfolios combined with negative contributions from declining prices in individual bonds. The developments around SBB continued as the company’s founder and CEO, Ilija Batljan, resigned as CEO and was replaced by Leiv Synnes, the CFO of Akelius Fastigheter.
Sagax, one of the real estate companies that has weathered the recent turbulence the best, carried out a directed new share issue of 2.1 billion SEK. According to the company, the purpose of this measure is to provide them with the opportunity to take action as the current market climate may lead to interesting investment opportunities.
In the primary market, activity was strong at the beginning of the month but gradually slowed down as a certain summer lull set in. Among the companies issuing new bonds, it is worth mentioning that Intrum issued a two-year bond in Swedish krona with a credit spread of 800 basis points. The high level caused prices of the company’s outstanding bonds to decline. In addition to Intrum, Simplicity also participated in issuances by Arla, Assemblin Group, and SSAB, among others.
All funds performed relatively strongly. Simplicity Likviditet rose by 0.35% while Simplicity Nordic Corporate Bond, Simplicity Global Corporate Bond and Simplicity High Yield rose by 0.20%, 0.55% and 0.35%, respectively.
The development of equity funds
Industrial companies and banks drove the fund higher during the month. It’s also going well for Volvo and DSV, both of which rose after target price increases during the month, as well as Sandvik, which also saw an increase when major shareholder Industrivärden increased its stake in the stock in early June.
The fund’s performance during the month was driven by banks and industrial companies. Analysts at Barclays and others expressed positivity towards Nordic banks in general, pointing out that concerns about their exposure to the real estate market are already priced in, while profitability remains impressive. As a result, holdings such as Swedbank, Nordea, SEB, and Handelsbanken saw increases. The fund’s industrial companies also impressed, with raised target prices for Volvo, Sandvik, and ABB. H&M experienced a significant rise after its quarterly report showed a much smaller profit decline than expected, along with a reduction in the company’s high inventory levels.
SSAB, which has been one of the fund’s largest holdings throughout the year, continued to perform strongly. The company impresses with its low costs, which protects its profitability despite low steel prices and investments in environmentally friendly production technology. Mycronic also saw a double-digit increase during the month. The demand for the company’s mask writers for semiconductor production remains strong, and Mycronic secured a new order in June.
The fund performed strongly, with several significant increases in its holdings. The shortage of single-family homes remains significant in the United States, sustaining demand for the fund’s homebuilders despite the high-interest rate environment. Meritage Homes, Installed Building Products, UFP Industrials, GMS, Simpson Manufacturing, and Taylor Morrison Home saw gains in this regard. The fund’s Korean clothing manufacturers, particularly Youngone, experienced an increase of over 40% as demand for activewear proved surprisingly high. The company manufactures clothing for brands such as North Face and Lululemon.
Real estate stocks recovered during the month. Analysts became more positive about the sector following recent devaluations. Balder and Pandox were among the fund’s largest contributors after receiving new buy recommendations. The performance of SBB was also positive. The company has changed its CEO and attracted buying interest from Brookfield and Balder, among others. The weight increased slightly in JM and Balder, while it decreased slightly in NP3, Corem, and Kojamo.
The fund had high returns in June, thanks in part to strong demand for single-family homes in the United States. The fund’s holdings TopBuild, Meritage Homes, KB Homes, and Installed Building Products saw gains in this regard. Jabil, a contract manufacturer of everything from packaging to technical equipment, also experienced a significant increase after the company raised its full-year forecast following better-than-expected Q3 earnings.