Summary of the market’s focus during the month:
- Agreement on US debt ceiling in place
After a period of intense negotiations, the US politicians finally managed to agree on an increase in the debt ceiling. The agreement means that public spending will be limited, but defense spending will be allowed to increase. The agreement, which runs until January 2025, avers the risk that the US government will not be able to meet its financial commitments and the message was well received by the markets.
- Inflation is finally starting to slow down
The US Federal Reserve raised interest rates by 0.25 percentage points this month in what the market then judged to be the last hike in this cycle. However, expectations of how central banks should act have varied greatly with incoming data and various statements during the month, and further interest rate hikes are currently being discounted in both the US, EU and Sweden. The inflation statistics published were a bit scattered, but mainly the numbers came in slightly lower than expected in many of the major economies.
- SBB under great pressure
During the month, the credit rating agency Fitch followed industry colleague S&P and lowered its credit rating on SBB from BBB- to BB+. The announcement was expected and thus had a limited effect on the price of the company’s shares and bonds. The company’s board of directors issued a statement in which they stated that they are conducting a strategic review of the entire business, which could involve a sale of all or part of the company. All in all, the events show how tight the situation is for SBB and for its main owner, Ilija Batljan.
The development of fixed income funds
The credit markets had a relatively strong performance during the month, driven by high yields and declining credit spreads. The reporting season has largely ended and the prevailing picture of strong earnings from companies continues.
SBB’s continued challenges as described above continued to create great sceptism for real estate companies, as indebtedness is in focus. Corem announced that it will not issue its hybrid bond when the first opportunity to do so occurs later this year. The aim is to safeguard its liquidity and prioritise refinancing of senior bonds. The measure sends a strong signal to banks and bondholders that Corem is prioritising its senior debt.
In the primary market, there was relatively good activity, although there is a clear pattern showing that transactions in smaller companies in the high yield segment generally take longer to complete. Simplicity participated in issues such as Latour, Lifco, and SEB.
All funds performed relatively strongly. Simplicity Likviditet rose by 0.36% while Simplicity Nordic Corporate Bond, Simplicity Global Corporate Bond EUR and Simplicity High Yield rose by 0.26%, 0.28% and 0.31%, respectively. Yields remain at high levels in all funds, which creates good conditions for future development.
The development of equity funds
Several industrial companies continued to develop positively, driven by a resilient economy and AI.
ABB rose in Simplicity Norden, Simplicity Sverige and Simplicity Green Impact after raised recommendations from analysts who see continued strong demand within electrification and automation.
Trelleborg presented increased financial targets that lifted the shares in Simplicity Norden, Simplicity Sverige and Simplicity Småbolag Sverige.
Atlas Copco is expected to benefit from the AI development as the company’s vacuum solutions are used in the production of semiconductor components, which affects Simplicity Norden and Simplicity Sverige.
Munters continued to rally after several raised price targets for the company, which is also expected to benefit from AI development as the company’s climate systems are used in data centers and in the manufacture of electronics. The share contributed to the returns in Simplicity Sverige, Simplicity Småbolag Sverige and Simplicity Green Impact.
Mycronic rose double digits and received orders from Asia during the month, lifting Simplicity Småbolag Sverige and Simplicity Sverige.
The strong development in Simplicity Green Impact continued during the month. Several holdings linked to AI development rallied, including Nvidia, which is now the fund’s largest holding. Several other holdings, such as ASM International, Flex and ON Semiconductor, rose on the same theme.
Simplicity Småbolag Global also benefited from higher valuations for AI-related companies. Belden, which manufactures network equipment for data centers and industrial automation, rose sharply, as did semiconductor manufacturers Fabrinet, Vishay Intertechnology, CTS Corp and Diodes.
A downgrade of SBB’s credit rating triggered a collapse in the stock and dragged the entire real estate sector into a decline. As a natural consequence, Simplicity Fastigheter performed weakly during the month. The market remains sceptical about the companies’ borrowing.
Development of the funds: Simplicity Norden declined -0.8 %, Simplicity Sverige by -2.4% %, Simplicity Fastigheter by -15.5% and Simplicity Småbolag Sverige fell by -3.0 %. Simplicity Småbolag Global advanced with +3.0% % and Simplicity Green Impact with 4.8 %.