Equity funds
Market commentary
Rising interest rates and relatively low valuations contributed to banks and investment companies being at the top of Simplicity’s equity funds and contributed to the positive performance of all funds during the month. Svolder, Ratos and Bure performed strongly in Simplicity Småbolag Sverige together with SEB, Investor and EQT as well as Lundbergs and Industrivärden for Simplicity Sverige and Simplicity Norden. In the US, bank shares also advanced and contributed strongly to the returns in Simplicity Småbolag Global through ServiceFirst Bank and Southside Bank, among others.
March was also a good month for consumer companies. After a year in which much consumption was put on hold, expectations are now rising that consumers will start spending more, as we have also seen the beginning of in the US, where retail sales have increased recently. Stable consumer companies such as Kesko, Axfood, Orkla, AAK, and North West Co as well as discretionary consumer companies such as Electrolux, Pandora, Tokmanni, Byggmax and Thule were successful investments in the funds. Several large caps had a high return in March, which also contributed to large gains for many indices. Index-heavy Swedish companies with returns of over 10% include Atlas Copco, Investor, Hexagon, EQT, Ericsson, SEB, Electrolux, Tele2, Husqvarna and Getinge. In Simplicity Norden, Pandora, DNB, A.P. Møller-Mærsk,Kesko and Yara also followed suit.
In the real estate market, the trend continued with large acquisitions of other listed companies, where the greatest market interest was dedicated to Corem’s bid for Klövern at the end of the month. The bid had a premium of 28% against Klövern’s trading price and seems to be well placed to be accepted. Both companies are large holdings in Simplicity Fastigheter.
The global shortage of semiconductors also made itself known here in Sweden, where Volvo has joined a large and diverse group of companies around the world that have warned that the component shortage could lead to delayed deliveries. As demand for computers and consumer electronics skyrocketed at the beginning of the pandemic, producers of so-called chips have had difficulty meeting demand when production in other areas has started up again.
Stock of the month
Silgan manufactures packaging for food, perfume, hair products, detergents and other products that need to be stored in packaging. The company is one of the world’s largest producers of tin cans and is used by Campbell’s Soup and Nestlé, among others. Demand for canned food has remained stable over the past year, to say the least, while Silgan is growing strongly in the market for glass closures. In addition to good growth, the company is very profitable with a return on equity of 27% in 2020. After a 16% rise during the month, the stock is despite good prospects trading at an estimated P/E ratio of 12.6. Silgan is one of the largest holdings in Simplicity Småbolag Global.
Global developments in brief
March included a first meeting between China and the new United States, without Trump, to advance the trade negotiations. However, the meeting did not result in much more than the parties pointing out that they stand by their previous agendas. The trade dispute thus stole very little of the markets’ focus on rising interest rates, which continued their upward trend during the month. However, markets also seemed to take note of the underlying reasons for the rise in interest rates, such as the fact that US jobs statistics during the month were very positive and that consumers have started spending money saved during the pandemic. The US Federal Reserve also issued dovish statements that stimulus will remain despite temporarily high inflation. We send a thought to the captain of Ever Given, the container ship that for almost a week was stuck in the Suez Canal and blocked transports worth an estimated USD9-10 billion.
Fixed Income Funds
Portfolio Managers comments
In March, the US Congress finally hammered through the $ 1.9 trillion fiscal support package. In addition to increased unemployment support, investments in vaccine- and infection tracking, as well as support for local governments and small businesses, the package also includes stimulus cheques to hundreds of millions of Americans of up to $ 1,400 per person. The purpose of the package is to kickstart the US economy again after the Corona crisis. Democrats are also planning for large investments in infrastructure and increased welfare which is expected to be financed through increased taxes and hence be more difficult to implement. Several manufacturers of commercial vehicles warned that shortage of semiconductors may lead to production disruptions. The Swedish truck manufacturer AB Volvo will suspend production during spring due to this component shortage which also forced the company to issue a profit warning. Global container traffic was hit by a serious disruption when a giant container ship ran aground in the Suez Canal and blocked it for all traffic for almost a week. Although the ship was eventually towed away, the incident caused major delays in deliveries of goods and surging freight rates.
The bond market continued to be in focus as long-term US bond yields continued to rise. The rise in interest rates can to some extent be explained by investors discounting a recovery in the economy, which in turn would be positive for the stock market. During the month, most international equity markets rose, with the exception of the tech-heavy Nasdaq, which was negatively impacted by higher interest rates. As expected, the US Federal Reserve did not change either its policy rate or the level of its asset purchases. However, it is interesting to note that seven out of 18 Fed members expect at least one interest rate hike before the end of 2023 and that four of them believe in an hike as early as next year. However, Fed Chairman Jerome Powell downplayed the importance of individual forecasts and emphasized that all members stand behind the Fed’s monetary policy framework. During a speech at the end of March, Powell also said that the Fed will not withdraw the stimulus until the economy has almost recovered. In Europe, the ECB announced that it would increase the pace of its asset purchases, which could be interpreted as a measure to prevent long-term bond yields from rising too much.
In the credit market, activity was high and a large number of companies chose to issue new bonds. Although risk appetite remained good, some hesitance among investors led to withdrawal of a couple of transactions due to weak investor interest. Simplicity participated in new issues in the IT company Duett, the insurance company Gjensidige and in the car service company Mekonomen. There was high activity in the real estate sector and in addition to a number of bond issues, a number of M&A-deals were also announced where Corem’s bid for Klövern was the one attracting most interest. If the deal is closed, a significantly larger company will be created with a more well-diversified portfolio, which in turn can lead to significant synergy effects. Klövern’s and Corem’s main owner, Rutger Arnhult, was also elected chairman of the board in Castellum, where he is also the largest owner. The nomination led to criticism from some investors who believe that conflicts of interest may arise given Arnhult’s involvement in competing companies, but also led to speculation about further strategic deals between the companies. All Simplicity’s credit funds rose during the month, supported by a good development in the Nordic credit market. Simplicity Likviditet increased by 0.04% while Simplicity Företagsobligationer, Simplicity Global Corporate Bond and Simplicity High Yield increased by 0.52%, 0.63% and 0.84% respectively.
Performance YTD: 0.26%
Yield net of fees: 0.30-0.40%
Duration: 0.20 years
Maturity profile: 1.32 years
Simplicity Företagsobligationer
Performance YTD: 1.32 %
Yield net of fees: 1.90-2.00%
Duration: 1.19 years
Maturity profile: 3.34 years
Simplicity Global Corporate Bond
Performance YTD: 1.22%
Yield net of fees: 2.40-2.50%
Duration: 2.69 years
Maturity profile: 3.58 years
Performance YTD: 2.40%
Yield net of fees: 3.20-3.30%
Duration: 1.41 years
Maturity profile: 3.62 years
All figures are presented in currency SEK.
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