Balanced bonds and equities
Development was relatively weak in November in European equity markets, particularly in Sweden. The euro appreciated against most currencies, which is one explanation for the trend, but the Swedish krona did not.
By September, we saw that anxiety about the Swedish property market was intensifying and had spread to several asset classes. The nervousness was, if anything, heightened in October and November, which primarily affected housing developers and construction and banking stocks.
From a European perspective, Sweden also appeared earlier this year to be one of the countries in the best position to begin tightening the monetary policy. This now seems more uncertain and many international investors are abandoning Swedish assets. In our judgement, however, the relative weakness of the Swedish equity market is transitory because most of the major listed companies are primarily dependent upon the international economy and are also well-served by a weak domestic currency.
The month delivered some turbulence in the international high yield market, but the levels at the end of the month actually point to a tranquil month in the Nordic corporate loans markets. Overall, the fund declined by 1.3 percent in November. With one month left in the year, the fund is up 7.9 percent.
During the month, the fund has generally sold equities in favour of bonds, primarily in Verisure and Bonheur. The fund increased its exposure to the security alarms company Verisure when it refinanced its debt. The company is heavily leveraged, but the business is unusually stable and the bond is liquid. Bonheur is a Norwegian company oriented towards energy, mainly in wind power, and has a strong balance sheet. On the downside, there is exposure to drilling rigs, which heightens the level of risk to some extent. The balance between equities and bonds is now virtually even.