Monthly Report May 2020

Equity Funds

Comments from the fund managers

The spring sun warmed the stock markets considerably during May as more and more countries began to ease restrictions in connection with the pandemic. For example, Germany decided to lift parts of the travel restrictions this summer, which contributed to rising prices for shares related to tourism and the hospitality industry, which have been in a really gloomy state since the spread of the pandemic. In addition, the relief was supported in several regions, not least in Europe, by increased support packages to mitigate economic damage. Meanwhile, the purchasing managers’ index also appears to have bottomed out, at least in the important United States, where Markit’s index now shows contraction at a lower rate. This month’s negative macro statistics, including globally rampant unemployment, did not significantly affect stock markets which even after the recent rise are still valued at historically attractive multiples.

On a more negative note, tensions between the US and China where re-established, exacerbated by China’s markings against Hong Kong, as well as criticism from the US about China’s handling of the corona virus outbreak. The lack of market reactions to the conflict is indicative of tensions between the countries to be considered the new normal.

Simplicity Norden
The month was marked by the fact that more volatile equities, which took the most beating in the big declines in February and March, recovered more compared to more resilient stocks during the turbulence. Simplicity Norden gradually positioned itself in stable operations under the stock market turmoil, many favored by pandemic conditions such as grocery retailers like Axfood and ICA as well as healthcare companies such as Novo Nordisk (DK) and AstraZeneca. As the stock market has recovered in May, the fund has instead increased positions  in more macro-impacted companies and reduced its holdings in companies such as ICA, Axfood, Orkla, Essity and Telia from high levels.

Given the market’s risk-on attitude, it was less surprising that the fund’s capital goods and materials companies performed well. Elevator manufacturer Kone (FI) received positive recommendations, including remarks of the stability of the company’s cash flow and attractive prospects for the global elevator market. Assa Abloy and Atlas Copco also outpaced the market during the month. Prices of timber rose, which benefited the fund’s forestry companies, as SCA and Holmen got an extra boost and contributed positively to the fund’s return. In addition, the fund’s exposure to the sector was further increased when BillerudKorsnäs was included in the portfolio. It is worth mentioning in other respects that Boliden was included in the portfolio and that the investment companies Investor and Industrivärden were weighted up. The fund rose by 2.0% during the month.

Simplicity Sverige
The fund had a positive month and rose by 3.8%. Thanks largely to the fund’s forestry companies SCA, Holmen, BillerudKorsnäs and Stora Enso, which developed significantly positively, the fund performed well in the market upturn. The biggest joy, however, was provided by the fund’s game developers. Stillfront, Paradox and Embracer all released strong reports during the month which showed continued high growth and profitability while the companies’ projects continue without much impact of the pandemic.

The fund’s high weight in stable companies such as ICA, Axfood and Telia, together with the healthcare sector, disadvantaged the fund’s development relative to the stock market as these did not develop as positively as more cyclical companies. The fund’s portfolio changes corresponded to a large extent to the developments on the stock exchange, where the grocery sector, healthcare and telecoms were decreased while materials companies, investment companies and game developers were increased. Among the fund’s sales were AstraZeneca, Axfood, ICA, Essity, Getinge, Telia, Skanska, Epiroc and Cloetta which was left entirely. Investor, Stillfront, Boliden, BillerudKorsnäs, Stora Enso, Scandic Hotels and Pandox were accumulated.

Simplicity Småbolag Sverige
The fund’s large overweight in the game developers Stillfront, Paradox and Embracer contributed strongly to the fund’s high return of 7.3% in May. Swedish small caps were also marked by risk-on where more volatile and cyclical companies rose the most. Industrial companies such as Lifco, SAS and Hexatronic, Dometic and Husqvarna were among the winners of the month outside the portfolio. Together with the above-mentioned game developers, Bygghemma and MIPS were also subjects of satisfaction in the fund. Bygghemma released information during the month that sales of own brands are rising and represent an increasing share of turnover. The biggest changes of the month consisted of purchases of Boliden and BillerudKorsnäs to approximately 3% and 2% of the portfolio respectively. Scandic Hotels and Pandox were also purchased with successful timing as future easings of Germany’s travel restrictions was announced shortly thereafter. The purchases were partly financed by decreases of holdings in Axfood and Getinge from high levels. The fact that Cloetta was left in its entirety also contributed to a reduction in the grocery companies.

Simplicity Småbolag Global
Global small caps showed a similar development, with the recovery in May giving a stronger boost to more volatile equities, which had been punished the most earlier in the spring. Driven by the fact that consumption seems to be moving in the right direction, consumer discretionary companies developed extra strong.

The fund’s development for the month ended at -0.9%, with holdings in most sectors generally showing a more moderate uptrend. On the positive side, the holding Deckers Outdoor (US) stood out with a return of 36%. The shoe company’s report during the month was strong, especially in relation to industry colleagues as the UGG and Hoka One One brands appear to have been less affected by the pandemic. Among the fund’s many holdings within home improvement, TopBuild (U.S.) stood out. The home insulation company reported a better profitability than expected, while analysts were more positive about the U.S. housing sector during the month. The high weight of stable consumer companies increased during the month through the purchase of Komeri (JP), a do-it-yourself chain, and the dairy company Emmi (CH). Packaging companies also increased through Silgan (US) and Sonoco Products (US) while the fund left the airline Forward Air (US) and IT-company WNS Holdings (IN).

Simplicity Norden
Month: 2.0 %
YTD: -9.2 %

Simplicity Sverige
Month: 3.8 %
YTD: -11.0 %

Simplicity Småbolag Sverige
Month: 7.3 %
YTD: -13.9 %

Simplicity Småbolag Global
Month: -0.9 %
YTD: -19.3 %

All funds are reported in currency SEK.


Fixed Income Funds

Comments from the fund managers

The positive trend that started in the financial markets in April continued in May. Although the uncertainty related to Covid-19 and its consequences remain substantial, the investors chose to embrace positive news such as positive results from several vaccine studies and news about the reopening of several economies. The US and Chinese relations deteriorated as China decided to introduce a new law that seeks to exercise more control over Hong Kong. Members of the US administration said that they no longer view Hong Kong as independent from China and threatened to remove Hong Kong´s special trade status. At the opening of the National People’s Congress in Beijing, Premier Minister, Li Keqiang declared that China will not set an economic growth target for 2020. This is the first time since 1990, that China does not set an economic growth target which underscores the turbulent economic environment. With the exception of Hong Kong, most international stock markets traded up during the month and it is interesting to note that the tech-oriented Nasdaq Index is now trading higher than it did at year end.

The Minutes from the Fed’s April meeting showed that the directors are concerned about a second wave of coronavirus infections as well as what damage the pandemic has caused to the global economy. At the same time, several board members raised the same concerns as Fed Chair Jerome Powell has expressed on several occasions, that the need for more fiscal support is huge. However, there were no discussions about further rate cuts, which means that a negative interest rate policy is not considered at the moment.  In Europe, there are speculations about an expansions of the ECB asset purchasing program, PEPP (Pandemic Emergency Purchase Programme) by €250 billion at the policy meeting in June to ensure flexibility. The current program is totaling €750 million, and with the current pace of investment, the entire program will be filled in October. In Sweden, the protocol from the Riksbank policy meeting showed that the decision to leave the repo rate unchanged was unanimous. However, the opinions regarding the future policy is mixed as the opinions of whether a rate cut later this year may be suitable seems to vary among the members of the Executive Board. In mid-May, the Riksbank announced that they had appointed Blackrock to analyze the Swedish corporate bond market and evaluate possible ways to include corporate bonds to its asset purchasing programme. We believe that a measure like that should be very positive for the Swedish market.

The credit markets developed strongly in May, and credit spreads narrowed as risk appetite increased among investors. The real estate company SBB ended up in the spotlight when the company’s CEO and largest owner, Ilja Baltjan, was arrested, suspected of insider trading. Eventually, the prosecutor closed the investigation and Baltjan was dismissed from allegations. However, the company’s bonds were negatively affected, and the credit rating agency S&P placed SBB’s bonds on CreditWatch for a possible downgrade. Another real estate company, Balder, ended up in a similar situation when two company officers, the CFO and the Head of Finance, were arrested for alleged insider trading. Balder’s bonds were negatively affected by this, although the allegations, do not concern Balder but instead the niche bank Collector, according to Swedish business daily, Dagens Industri. The primary market activity increased and a large number of issues were completed in the international as well as in the Nordic markets. Simplicity participated in issues in the two Nordic banks, SBAB and Nordea, and in an issue by the Spanish bank BBVA, among others. We were also involved in an issue in the Norwegian company Digiplex, which develops and operates data storage centers in Norway and Sweden. The transaction is interesting as it was one of the first High Yield issues in the Nordic market since before the outbreak of the Corona crisis. The fact that it was completed indicates that the market has improved. There were also some new issues by real estate companies in the BBB segment and although the volumes were small, the signal value is positive.

All funds had a positive development during the month. Simplicity Likviditet increased by 0.33%, Simplicity Företagsobligationer by 1.39% and Simplicty Global Corporate Bond rose by 2.23%. We increased our holdings of bonds denominated in EUR and USD and the number of non-domestic holdings was also increased in Simplicty Global Corporate Bond.

Simplicity Likviditet

Performance YTD: -0.85%

Yield net of fees: 1.6-1.7%

Duration: 0.20 years

Maturity profile: 1.07 years


Simplicity Företagsobligationer

Performance YTD: -6.12%

Yield net of fees: 3.9-4.0%

Duration: 0.98 years

Maturity profile: 2.84 years


Simplicity Global Corporate Bond

Performance YTD: -7.20%

Yield net of fees: 4.9-5.0%

Duration: 1.63 years

Maturity profile: 3.12 years

All funds are reported in currency SEK.

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5 June

The Simplicity funds will be closed for trading on June 6, 2024.

Due to Sweden’s National Day, all funds will be closed for trading on June 6, 2024. If you have any questions regarding your fund transactions or holdings, please contact our customer service at 0340 – 21 95 00 or via email at kundservice@simplicity.se. We are available from 8:00 AM to 5:00 PM to assist you.

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