Signs of a weaker economy
After a weak March, stock markets picked up in April. The fund rose 2.0 percent. Companies generally reported a strong first quarter with high earnings growth. The main report pleasers among the fund’s holdings were Dometic and Telia.
Some more cyclical stocks, including engineering companies, saw their share prices wobble despite positive reports. There are signals that the economy has passed its peak, particularly here in Europe, which obviously made investors more cautious.
In the shorter perspective, the US economy looks stronger and inflation is on its way up, although from a low level. The US 10-year bond has risen to the 3 percent level and a number of pundits are now predicting up to four interest rate increases from the Fed. Overall, this led to a strong appreciation of the US dollar in April. However, Swedish inflation is not accelerating and the Riksbank has now signalled that it will be some time before its policy rate rises.
As a direct consequence, the Swedish krona has lost ground against virtually all world currencies, not just the dollar. This is good for exporters in the short term, but banks would probably like to see higher interest rates, especially if competition in the mortgage market can be expected to harden. The fund has also chosen to divest its holding in Nordea.
A new holding is instead ABB. With operations in electricity distribution, power transmission and industrial robots, the company appears to be well positioned for the future. Profitability, on the other hand, is lower than for many competitors, which of course could represent potential but may also be a reason to question its management and structure.
The fund has also increased in several existing holdings. On the bond side, the fund has decreased its exposure to bonds with lower interest rates, including Comhem, Intrum and Vattenfall. The fund has increased in the Akelius bond that it entered in March. The Akelius bond yields an annual return of just under 4 percent.
Notably, Telia is now launching a comprehensive share repurchase programme, something we have proposed in meetings with the company for a long time. April and May are the months for AGMs. As in previous years, we have chosen to exercise our right to vote by attending many meetings, and we are represented on the nomination committees of around ten.