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Low expectations

After a troubled January and start to February, many securities markets have now stabilised. Equity prices have reclaimed much of their losses, and credit spreads have at least stopped widening. The Carnegie Strategy Fund fund rose 1.25 percent.

Oil prices appear to have bottomed out for now, but the calm may be deceptive. It seems markets no longer believe in the ability of central banks to boost growth and inflation using interest rates. This is evidenced by the fact that the Swedish krona was almost untouched after the Riksbank cut its repo by 15 basis points to -0.5 percent, and the yen strengthened after Japan’s step into negative rates. Corporate earnings for the fourth quarter of 2015, and outlooks for 2016, also indicate a slowdown. This is set against valuations that suggest expectations are already low.

The low, or even negative, interest rates are expected to be negative for banks, which raises concern about their stability. Swedish banks are among the most stable, and the prices of their bonds have started to rise again. But many other corporate bonds, such as TeliaSonera and Volvo, have only seen a halt in their decline.

The proportion of equities in the fund has increased slightly in recent months at the expense of bonds. In February, we upped our holdings in Investor. At its peak, alongside the stock market decline, the discount in Investor was 30 percent, which we consider a buying opportunity. It is worth noting that Kesko stock has risen in the new year as a result of its defensive nature. We have reduced our bond holding in DnB.

So far this year, shares with stable cash flows and dividends have generally been relative winners. Unlike last year, large caps have performed better than small caps. Together, this has contributed positively to the fund’s relative performance this year.

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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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