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Awaiting a continued upturn?

November was another positive month for Carnegie Strategifond.

If nothing unforeseen occurs in December, this year’s return will probably be quite special, which is tough to understand given the mood ahead of 2019.

One important explanation is that the US Federal Reserve switched from successive interest rate hikes to making cuts in order to stimulate the economy. Central banks in large economies are therefore all now conducting expansionary monetary policy. The Riksbank is a little contrary, and is likely to up its policy rate this December to 0 percent. Note that 10-year government bonds are again trading at positive interest rates. The Swedish krona has also strengthened recently.

The strong stock markets are leading analysts to point out that this upturn has been unusually prolonged. This is true if we take the starting point as the previous low during the last recession, but if economic cycles are instead defined as starting once the previous gains have been clawed back, the current rise did not begin until 2013.

Six years may feel like a long time, but compared to previous cycles there is quite some way to go. Compare, for example, with the upturns of 1954–1972 and 1980–1999, or even the downturn in 2000–2013. This is of course playing with numbers, but it does show how arguments about performance and the length of cycles should be taken with a pinch of salt.

The fund changed little in November. The equity holding in SKF was sold following a good upturn on increased cyclical optimism. An old acquaintance has appeared in the fund instead; Industrivärden joined after its discount increased.

We also increased the holdings in ABB, Kinnevik, Securitas and Volvo, while the holding in Dometic was reduced. On the bond side, Pioneer Property entirely redeemed its bond, and the fund reduced its weight in Crayon and Scan Global. Instead, we invested in bonds in BEWI, Heimstaden Bostad, Kistefon, Max Fast and Norled. The allocation between equities and bonds is largely unchanged.

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