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First-rate Finnish property yield

The securities markets have had outstanding ability to disregard various political risks for a long time. Attention has been focused instead on inflation expectations and corporate earnings performance, which has resulted in a favourable market trend.

Some concern about inflation arose in February, however, due to higher wage increases in the US than expected and to President Trump’s decision to introduce tariffs on steel and aluminium. The latter may eventually lead to generally higher trade barriers and thus poorer growth potential for most companies. The yield curve has flattened, which is usually bad for risk assets. Consequently, the equity markets have recently shown weak development and credit spreads have widened. We have also noted that liquidity in the market is slipping.

In the light of the above, our decision in late last year to reduce risk exposure seems well-advised. As a result, the downturn in March could be contained at 0.8 percent. Carnegie Strategy Fund has lost 0.4 percent since the first of the year. The bright side of the market downturns is that valuations no longer seem historically high. The depreciation of the Swedish krona is also creating better opportunities for Swedish equities ahead.

The fund made a new investment in March in CIBUS, which owns Finnish grocery-anchored real estate. The company intends to distribute the bulk of profits, resulting in direct yield approaching 8 percent. There is also potential for higher earnings, primarily through lower borrowing costs, but also renegotiation of rental contracts. The fund has also bought shares in SKF and Volvo subsequent to the recent price downturns. The buys were financed through the sale of shares in Industrivärden, whose discount has shrunk.

The fund also bought a bond recently issued by Akelius. The company’s orientation towards residential real estate abroad in countries including Germany, Canada and the US makes it interesting, along with its prudent approach to debt. The bond is a hybrid, meaning that it will mature in five years at the earliest, but the company can elect to extend it.

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Since 2nd November 2017 Carnegie Strategy Fund is a feeder of Carnegie Strategifond, the master. The fund management is therefore identical. For more specific information regarding the master fund’s holdings, please visit...

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