Low expectations mean opportunities for Strategifond
Given the volume of negative news flooding the securities markets in August, the limited slide of the Stockholm exchange, -1.2 percent, must be seen as a sign of strength even though there was some help from the sinking krona. The fund also delivered a robust message with a rise of 0.6 (0.8) percent. The gain since the start of the year is 17.8 (17.9) percent.
The trade war, big slides in the Argentine stock market, widespread protests in Hong Kong, suspension of the UK parliament and generally weak economic signals have otherwise dominated the agenda. Interest rates continued to fall and bonds worth an incomprehensible USD 15 trillion are now trading at negative yields. US 10-year treasury bonds dropped below their 2-year counterparts, inverting the yield curve, which has historically been a sure-fire sign of upcoming recession. However, some economists believe central bank bond purchases reduce the signal’s reliability.
Lower interest rates had a positive impact on the valuation of shares in certain sectors, such as real estate and forest products, while more cyclical shares continue to be valued low. This is not strange since low interest can be said to reflect lower future growth, but we believe today’s valuations imply extremely low expectations for many stocks. The fund has therefore slightly increased its proportion of equities, from 58 percent to 60, by upping several existing positions such as ABB, Dometic, Duni, Epiroc, Kinnevik, SKF and Skanska.
The low, and often negative, interest rates have brought some unfamiliar situations. For example, the dividend yield on equities exceeds the 30-year US treasury yield for the first time since 2008. Furthermore, some banks in Europe are beginning to apply negative rates to private savers with large account balances. In this environment, the focus of Strategifond on securities with direct returns should be particularly attractive.
The equity purchases were financed with bond sales in Bergvik and Intrum at high valuations and with a good profit. The funds were also sufficient to buy bonds in Bonheur and Stillfront. Bonheur designs and operates renewable energy parks. Stillfront operates and develops strategy games. Both are financially strong.