More cautious offensive
The recovery in the economy and the stock markets continued in November. That said, reports of higher-than-expected inflation, mainly for durable goods, raised concerns.
There is reason to believe that the inflation may be temporary, partly as a result of increased productivity, and partly as a result of increasing demand for services at the expense of goods. Both are consequences of a normalization in society. Rising wage inflation, so far mostly in the US, is a cause for concern. However, interest rates have not been affected to any great extent and inflation-linked bonds are still trading at a negative interest rate; -1 percent in the United States and around -1.5 percent in Sweden. Market uncertainty swelled at the end of the month with the discovery of the new Omicron variant. The portfolio remains relatively offensive, but is more cautious as the equity share was reduced from 67 percent to 60 percent in November.
A share investment was made this month in Finnish engineering company Kone, a manufacturer of products including escalators and elevators. The market for lifts in the Western world is shared by four suppliers, and this oligopoly plus a large share of the aftermarket for the installed base means that profitability is high. In other regions with higher growth, like China, there is more competition and thus lower profitability. The margin has been very stable over time, and during the financial crisis, sales increased while the margin was largely unchanged at around 14 percent. In 2020, sales were unchanged at the same time as the margin increased to almost 13 percent. Kone’s financial position is very stable, with net cash of almost EUR 2 billion, and there may be an extra dividend as the board has recently authorized buybacks.
The Nordic corporate bond market was characterized in November by a large number of new issues, which put some pressure on prices. The fund invested in flooring manufacturer Kährs, which issued a 5-year sustainability bond at STIBOR +6 percent. The company is a leading manufacturer of flooring in the Nordics. Its raw materials come exclusively from certified forest, and sustainability is a priority that gives the company a big lead.