Equity funds
Simplicity Norden
A positive September month in which the fund rose 4.4% compared to the 3.0% for index. Positive contributions came from the holdings in the stable consumer companies Axfood, ICA and Kesko (FI), all overperforming the market. Grocery sales in Sweden rose by 5% in August, while Kesko released a reverse profit warning with higher guidance for its sales. Positive contributions also came from the fund’s forest companies, which developed very well led by SCA and Holmen, rallying by 10% and 9% respectively during the month. The development in SCA was supported by the decision to phase out the production of printing paper and instead invest in faster growing segments such as thermomechanical pulp. The fund increased the allocation to the real estate sector through the Finnish property developer Kojamo and Castellum and Hufvudstaden. The telecom sector was reduced in the fund despite stable development through halved weights in Telenor (NO) and Telia. The healthcare company Orion (FI) was divested and Novo Nordisk (DK) was slightly reduced together with Assa Abloy and Atlas Copco.
Simplicity Sverige
The fund performed very positively in September with a monthly return of 6.1% compared to 4.5% for index. Holdings in real estate companies performed very strongly with an average return of 19%, mainly led by Balder and Wallenstam, whose return was over 20% during the month. The pessimism surrounding the future of real estate companies has turned to optimism driven by improved economic prospects and valuations at a lower level than before the corona crisis. The game developers’ positive trend continued during September, especially through Stillfront and Paradox both with gains exceeding 20%. Stillfront’s acquisition strategy continued during the month with the acquisition of Croatian mobile game developer Nanobit, and Paradox’s launch of the game Crusader Kings III was more successful than expected. Negative contributors during the month were the large banks Nordea, Swedbank and SEB, which were valued down after the release of new information on money laundering. In an active month, the most relevant changes in the portfolio consisted of Telia being left in full and of reduced weights in SEB, Nordea, Atlas Copco, Assa Abloy and Ericsson. The fund instead made wide increases in the healthcare sector and further build upon the positions in Mips, Byggmax, Axfood and ICA. Real estate companies also increased through the purchase of Cibus, whose strategy is aimed at properties used by major food chains.
Simplicity Småbolag Sverige
The fund had another positive month and rose 6.1%, keeping up with the market despite its underweight in the soaring real estate sector during the month. The fund’s game developers Paradox and Stillfront were the main contributors with good performance supported by Mips, which also contributed strongly amid a continued strong trend in both the stock and the demand for bicycle helmets. The stable consumer companies ICA and Axfood contributed positively driven by the continued growth of grocery sales during August. Good contributions also came from the forest companies SCA and Holmen, both with a return of nearly 10% during the month. With improved sentiment for real estate based on a brightening economic outlook, the fund increased the sector’s weight sharply from 10% to 17%, mainly through the purchase of Klövern, Hufvudstaden, Balder, Fabege and Cibus. The purchases were partly financed by profit-taking in Embracer, Mips, Mycronic, Resurs, Boliden and Getinge.
Simplicity Småbolag Global
The fund rose by 1.3%, which was in line with global small caps overall. The healthcare sector developed strongest among the global small caps and rose by an average of just over 5%. The fund’s largest holding, Tecan Group (CH), which is a producer of lab equipment, was in the top tier of the month’s top performance in the portfolio and ended the month 14% up. In addition, the fund’s stable consumer and telecom companies overperformed through Axfood, Sugi (JP), Uni-President China (CN) and Cogeco Communications (CA). Among the changes for the month, holdings in the IT sector were somewhat reduced by a reduced position in Enghouse Systems (CA). Galenica (CH) was fully divested for the benefit of the American transport company Heartland Express, as well as the bread baker Flowers Foods (US).
Chart of the month
The graph below shows the sales trend for Swedish grocery retailers, which includes Axfood’s and ICA’s sales. Despite very strong growth in early 2020, grocery retailers’ sales continue to grow, especially online, where sales increased by 89.1% in August.
Source: Swedish Food Retailers Federation, Dagligvaruindex August 2020.
Simplicity Norden
Month: 4.4 %
YTD: -2.6 %
Simplicity Sverige
Month: 6.1 %
YTD: 1.5 %
Simplicity Småbolag Sverige
Month: 6.1 %
YTD: 6.4 %
Simplicity Småbolag Global
Month: 1.3 %
YTD: -15.6 %
All figures are presented in currency SEK.
Fixed Income Funds
Comments from the fund managers
The volatility in the financial markets increased in September as the number of people infected by Covid 19 increased in Europe and a couple of countries introduced further restrictions and began discussing new shutdowns. In the United States, the first presidential election debate was held between Donald Trump and Joe Biden. The debate became a messy story with a very harsh tone where accusations were thrown back and forth and the moderator repeatedly had to urge the two presidential candidates not to interrupt each other. If this debate gives an indication as to what the rest of the election campaign will look like, we can expect a turbulent period until the election in early November. There is also an imminent risk that it will not be possible to proclaim a winner on the election night if the proportion of early- and postal votes is large, which may add to the uncertainty. In Britain, Boris Johnson caused concern by indicating that previous agreements regarding the UK border with Ireland may not apply. This may jeopardize the chances for putting a British trade agreement with the EU in place before year end. Most international stock markets fell during the month while the Swedish stock market held up well and finished in positive territory.
In the US, the Fed left its key interest rate unchanged while reiterating its previous message that inflation, after a period of lower inflation, could be allowed to rise above the 2% target without prompting immediate action by the Fed. The Fed also raised its growth forecast for 2020 and indicated that the policy rate will remain close to zero until the end of 2023. Neither the interest rate announcement nor the statements gave rise to any major market movements. During the press conference following the ECB’s interest rate meeting, the head of the ECB, Christina Lagarde, downplayed the deflationary risks, which caused the euro to strengthen and long-term bond yields to rise. In Sweden, the Riksbank’s announcement of an unchanged repo rate did not cause any major reactions to interest rates or currencies. During the month, the Riksbank started buying corporate bonds by purchasing bonds for a total of SEK 300 million in the secondary market. So far, the information from the Riksbank has been scarce and no detailed information about the purchases has been released. Given that the volumes are small so far, the fact that the Riksbank has begun its purchases and has the capacity to buy more is the most important factor to consider.
After a positive start to the month, uncertainty increased in the credit market, which resulted in rising credit spreads, primarily in the international markets. Bank bonds fell after a report exposing a large number of banks’ handling of suspicious money laundering transactions was leaked to the media. Although the news received a lot of attention, a lot of the information was already known and the prices of banks bonds recovered relatively quickly. The primary market activity was good even though it slowed somewhat towards the end of the month as a result of the increased volatility and as some companies entered silent periods ahead of their Q3-reports. We participated in new issues in, among others, the industrial company Hexagon, the real estate companies M2 and Nivika, as well as in the solar and wind energy company European Energy, which issued a green hybrid bond. Simplicity Global Corporate Bond fell by 0.21% during the month while Simplicity Likviditet, Simplicity Företagsobligationer and Simplicity High Yield rose by 0.16%, 0.38% and 0.41% respectively.
Simplicity Likviditet
Performance YTD: 0.36%
Yield net of fees: 0.50-0.60%
Duration: 0.19 years
Maturity profile: 1.10 years
Simplicity Företagsobligationer
Performance YTD: -1.81%
Yield net of fees: 2.70-2.80%
Duration: 1.05 years
Maturity profile: 2.79 years
Simplicity Global Corporate Bond
Performance YTD: -3.44%
Yield net of fees: 3.80-3.90%
Duration: 2.65 years
Maturity profile: 3.63 years
Simplicity High Yield
Performance YTD: 1.44%
Yield net of fees: 3.70-3.80%
Duration: 1.27 years
Maturity profile: 3.23 years
All figures are presented in currency SEK.
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