March turned out to be a dramatic, eventful, and volatile month for both the bond and stock markets as turmoil in the banking sector stole the spotlight and influenced the markets. The old saying, loosely translated, that “the Fed raises interest rates until something breaks” proved to be true once again. However, it wasn’t the US labor market that faltered as many had expected, but rather the American niche bank Silicon Valley Bank that collapsed due to the higher interest rates.
Summary of market focus during the month:
- Banking turmoil in the US and Europe
The markets broadly devalued banks despite the problems being rooted in company-specific events at American banks Silicon Valley Bank, Signature Bank, and subsequently European Credit Suisse. The fear of contagion and further negative surprises from banks was significant, but central banks and politicians acted swiftly and forcefully to maintain crucial financial stability. This had an effect and calmed the markets, with the volatility index VIX surprisingly ending the month at an even lower level than at the beginning of the month.
- Continued high inflation
Inflationary pressures remain high around the world, and central banks are now grappling with high inflation on one hand and financial stability on the other. The US Federal Reserve did raise its benchmark interest rate by 25 basis points at its March meeting, but market pricing indicates that a lower interest rate peak, fewer remaining hikes, and earlier cuts are now being discounted. However, markets generally price in a softer interest rate path going forward.
- Continued pressure on Swedish households
In Sweden, statistics from Statistics Sweden (SCB) showed that household loan growth continues to decline, while the average variable interest rate is now at its highest level since 2012. Overall, there is significant pressure on households at present, and the outlook for private consumption is not particularly positive.
Development of fixed income funds
The credit markets were marked by banking turbulence, which initially caused significant negative reactions for most bank bonds. However, the situation calmed down, and buying interest emerged in companies considered to have high quality and low risk, such as the Nordic banks. In a second wave of speculation about which other European banks may have problems, both stock and bond prices of Deutsche Bank declined sharply. However, after several politicians, including Germany’s Chancellor Olaf Scholz, stated and confirmed that both Deutsche Bank and the rest of the banking system are strong, the concern subsided and the market recovered. Solis, a company that develops and operates solar parks in Europe, announced that it had breached several of its bond covenants, which caused the price of the company’s bonds to decline. Although a settlement could eventually be reached with bondholders, our funds were negatively affected by Solis’ developments. Primary market activity was strong at the beginning of March but subsided as volatility increased. We participated in issuances by Telia, Tryg Forsikring, Securitas, and Hoist Finance, among others.
The funds had mixed performance, with Simplicity Likviditet rising by 0.19%, while Simplicity Företagsobligationer, Simplicity Global Corporate Bond, and Simplicity High Yield declined by 1.07%, 1.72%, and 1.47% respectively. The declines are primarily explained by the weaker sentiment in the banking sector. Yields in all funds are still at high levels.
Development of equity funds
Although Simplicity Norden fell during the month due to the negative performance of banks, other major holdings had a good month. One of the fund’s largest holdings, Novo Nordisk, saw double-digit growth due to high demand for insulin in the US. Logistics company DSV also rose due to strong demand among industry peers. In both Swedish funds, Hexpol and Mycronic also contributed strongly to the returns. The latter rose after receiving orders for SLX mask writers in both Asia and the US in March.
Game developer Paradox released new gaming news during the month and was rewarded with an 18% increase in its stock price. The stock is held in both Simplicity Småbolag Sverige and Simplicity Småbolag Global. Despite an overweight position in the banking sector, our global small-cap fund managed to withstand the fall well during the month. The decline was easier for the fund’s bank stocks than for the sector as a whole, and the fund’s other holdings compensated with larger gains. In addition to Paradox, mention can be made of Melexis, Rai Way, and Orion Corp.
Simplicity Green Impact had a fantastic performance during the month, achieving a positive return of 2.6%. The fund’s solar companies SMA Solar Technology and First Solar rose due to continued high demand for solar cells in the US, with the latter expanding with a new factory to meet the demand. Also, read about this month’s stock, Ecopro, which has now risen by 384% this year.
After a broad decline in real estate stocks due to increases in financing costs, research firms raised their recommendations for several real estate stocks at the end of the month, and Simplicity Fastigheter finished a challenging month strongly.
Fund performance: Simplicity Norden fell by 3.6%, Simplicity Sverige by 2.2%, Simplicity Småbolag Sverige rose by 0.4%, while Simplicity Fastigheter and Simplicity Småbolag Global declined by 11.1% and 3.5% respectively. Simplicity Green Impact performed the best with a 2.6% increase.Tillbaka till Nyheter