2021-03-09

Monthly reports February 2021

Equity funds

Market commentary
Cyclical companies were at theforefront of this month’s upswing. Banks, industrials, commodity companies and consumer discretionary companies were at among the top performers in all funds, except Simplicity Fastigheter for obvious reasons. In Simplicity Norden and Simplicity Sverige, capital goods companies Atlas Copco, Volvo and  Epiroc were particularly influential together with the mining company Boliden. Danish  bank  Ringkjøbing  Landbobank and Finnish e-retailer  Verkkokauppa also rose sharply in Simplicity Norden. Simplicity Småbolag Sverige also received  strong contributions from game developers G5 Entertainment and Embracer, as well as from more cyclical companies such as  Indutrade and Boliden. Embracer’s continued bold and successful acquisition strategy was rewarded with increased price targets in February.

Another fast growing company, Sinch, rose by over 28% during the month and was a top holding of all of the above-mentioned funds. In addition to an earnings report that beat expectations,  the communications company announced a high-profile acquisition of  Inteliquent  to increase its presence in the U.S. market.

In Simplicity Småbolag Global, banks and industrial companies rose the most, especially  Generac,  whose sales of generators to private homes skyrocketed after a cold snap in North America led to widespread power outages in Texas, among other states.

Simplicity Fastigheter declined with the sector, but the performance of the companies was more mixed than it was in January. For example, Selvaag  Bolig,  NP3,  Sagax and Platzer rose by over  5%.  The bidding war for Entra took a sharp turn as neither Castellum’s  nor  SBB’s bids received sufficient acceptance. All three companies’ shares fell slightly during the month.

 

Stock of the month
Boliden is a fantastic mining company with its own mines and smelters. The Aitik mine  is a sight to behold; a huge open pit and one of Europe’s largest copper mines. Enormous dumpers look like ants as they drive around the mine picking up ore containing copper, gold and silver. In a month of both economic optimism and inflationary turmoil, it is perhaps no wonder that a commodity company has developed well, but Boliden also released a very strong quarterly report with exceeded expectations for both sales and earnings that allowed for extra dividends. Despite low leverage, the company’s return on equity has now been between 14% and 21% over the past five years.

 

Global developments in brief
World stock markets continued to rise in February as optimism about the economy  remained intact. The spread of infection in the world decreased, vaccinations continued and although the vaccine from Astra Zeneca seems to have low effectiveness on the South African mutation, both Moderna and Pfizer’s vaccines seem to work well on known mutations. In addition, the vaccine from Johnson & Johnson was approved in the United States. This combined with the expansionary monetary and fiscal policy, are bringing us towards the strongest GDP growth in decades, according to the IMF’s forecast. At the end of the month, volatility on the stock markets increased as rising long-term interest rates received more attention, driven by concerns that increasing inflationary pressures could cause central banks to retreat from their low interest rates. Growth and inflation are likely focus areas of the stock market for many months to come, as the combination of sales growth and cost increases will be important for whether companies manage to live up to expectations.

Simplicity Norden
Month: 1,0%
YTD: 0,6%

Simplicity Sverige
Month: 1,1%
YTD: -0,2%

Simplicity Småbolag Sverige
Month: 1,9%
YTD: -1,3%

Simplicity Småbolag Global
Month: 5,1%
YTD: 8,9%

Simplicity Fastigheter
Month: -1,7%
YTD: -5,4%

All figures are presented in currency SEK.

Fixed Income Funds

Portfolio Managers comments
In February, the news flow continued to be dominated by developments in the spread of the Corona virus. Vaccinations are in full swing worldwide and the overall objectives, for the EU among others, remain the same despite missed vaccine deliveries. However, the spread of infections is rising again and concerns about a third virus wave o are high, which has led to new restrictions and lockdowns, which are affecting the already hard-hit service industries. In the UK, which is no longer part of the EU, the vaccination process has progressed further, prompting the British government to launch a plan to lift England´s lockdown. In the US, the former president Donald Trump was acquitted in the impeachment trial. However, the problems are not over for Trump, as a number of civil lawsuits are probably waiting for him. On the geopolitical front, tensions increased after the United States attacked a number of Iranian militia backed bases in Syria. On the positive front, it can be noted that the United States reentered the Paris Agreement during the month.

In the financial markets, there was a strong focus on the spike in interest rates that occured during the second half of February. The interest rate on the ten-year US government bond has risen from 0.91% at year end to 1.41% today and is now at the same levels as before the Corona crisis. European long-term bond yields also rose sharply during the month. The equity markets reacted negatively to the interest rates move and after a strong start, most international stock exchanges fell back. Both the US and European central banks made statements to try to calm the market. Fed Chairman Jerome Powell emphasized in a speech to the House of Representatives that the important thing for the Fed is to increase employment and that this will require continued monetary policy stimuli. In Europe, various representatives of the ECB indicated that it may be necessary to use the bond purchase program to mitigate rising interest rates and that efforts are being made to ensure that financial conditions do not tighten.

The credit markets began the month with tighter credit spreads and rising bond prices, but conditions deteriorated gradually in the light of the turbulence in the fixed income market. The Q4 reporting season has provided support to the markets as many companies have proven that they have managed well during the crisis. Both Castellum and SBB withdrew their takeover bids for the Norwegian real estate company Entra. However, it is not unlikely that we may see M&A-activity elsewhere in the real estate sector in the coming year. The airline SAS reported very weak figures for the fourth quarter. The company has been hit hard by lockdowns and decreased travelling and even though they have implemented extensive cost saving programmes and a restructured their balance sheet, they still have a long way to go to reach profitabillity. Simplicity´s exposure in SAS-bonds is very limited.

In the primary market, the activity was high as a large number of companies issued new bonds. The real estate company Heimstaden made its first Euro transaction as they issued a five-year bond at an interest rate of 4.50%. The interest rate was set at a high level to attract investors’ interest and this affected the pricing of the company’s bonds issued in Swedish kronor, which had a negative effect on Simplicity’s funds. In other respects, we participated in new issues in the investment company Aker Horizon, the solar energy company Scatec Solar, the mortgage bank SBAB and the insurance company Tryg.

Despite the higher volatility, all funds had a positive performance during the month. Simplicity Likviditet rose by 0.08%, Simplicity Företagsobligationer by 0.37% while Simplicity Global Corporate Bond and Simplicity High Yield gained 0.45% and 0.87% respectively.

Simplicity Likviditet

Performance YTD:  0.21%
Yield net of fees: 0.30-0.40%
Duration: 0.17 years
Maturity profile: 1.29 years

Simplicity Företagsobligationer

Performance YTD: 0.79 %
Yield net of fees: 2.00-2.10%
Duration: 1.19 years
Maturity profile: 3.40 years

Simplicity Global Corporate Bond

Performance YTD: 0.59%
Yield net of fees: 2.60-2.70%
Duration: 2.68 years
Maturity profile: 3.62 years

Simplicity High Yield

Performance YTD: 1.55%
Yield net of fees: 3.80-3.90%
Duration: 1.41 years
Maturity profile: 3.70 years

All figures are presented in currency SEK.

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