The importance of diversification

Securities markets were marked by inflation worries in early February. American statistics suddenly showed that wage increases had accelerated, something that pundits had long awaited.

Expectations of higher interest rates therefore caused both bond markets and stock markets to fall globally. Credit spreads also increased. Even though the markets stabilised at the end of the month, and in many cases almost recovered their losses, increasingly many commentators are now asking whether the period of falling or unusually low interest rates is now finally over. However, inflationary pressure here at home is conspicuous by its absence, contributing to a weak krona.

Considering the increased market unease, the timing of the fund’s shrinking proportion of equities in recent months seems to have been well considered. But fixed income securities can also pose a risk. The company behind one of the fund’s bond holdings, Lebara, was unable at its year-end 2017 presentation to satisfactorily answer a number of important questions regarding the group’s performance. The bond dropped sharply, at least in the short term.

We are, of course, trying to get relevant information from the company and are closely monitoring developments, while comforting ourselves that our holding is modest and that the impact on the fund’s performance has therefore been marginal. This points to the importance of also having worthwhile risk diversification on the credit side.

H&M’s capital markets day, eagerly awaited by many investors, was unable to get the stock price to rise. Online sales admittedly seem to be stronger than most anticipated, but more or less everything else took a negative slant. We have chosen to go against the tide and retain our position. The reports from Dometic and Lifco were more upbeat, with both leading to considerable share price gains.

The fund dropped 0.2 percent in February, which means it has risen by 0.4 percent since the start of the year. The fund made no large securities transactions in February.


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