Portfolio Managers comments

September was a rather gloomy month with falling equity prices and rising credit spreads. There is still great uncertainty regarding the development of the global economy as well as interest rates. Even though most analysts expect that we are close to the policy rate peak, inflation is still too high for it to be possible to discount interest rate cuts in the near term. In the United States, the political turmoil regarding the debt ceiling continued and in the end the politicians only managed to agree on a transitional budget that means that a shutdown can be avoided until Thanksgiving in November. There is also a strike going on among the workers at the major American car manufacturers General Motors, Ford and Stellantis, which in the long run could lead to problems for both the companies and their subcontractors. The differences of opinions among world leaders became even more evident when not only Vladimir Putin but also Xi Jinping chose to not participate in the G20 meeting in New Dehli for the first time since 2008. China is also struggling with serious problems linked to the highly leveraged real estate market which is affecting the entire Chinese economy. Trading in the stocks in one of the most debt burdened companies, Evergrande, was suspended on the Hong Kong stock exchange after media reported that the company’s chairman was placed under house arrest and surveillance. In Sweden, the National Institute of Economic Research released a report that predicts that the economic downturn is set to deepen and that the Swedish economy will not begin to show some signs of recovery until the end of 2024.

The European Central Bank raised interest rates as planned by 0.25 percentage points to a record high level of 4.00%. However, the interest rate announcement was followed by a statement indicating that this could be the last hike in this cycle. This message was reinforced by the fact that the ECB also lowered their growth assumptions. The Fed chose to leave the Fed Funds Rate unchanged but, unlike the ECB, the Fed indicated that more rate hikes may be necessary and that the rate may remain at high levels for a longer period. Although the Fed members still expect rate cuts in 2024, the date for the first rate cut has been pushed forward again. In Sweden, the Riksbank raised the policy rate by 25 basis points, and in an interview with Swedish media, Erik Thedéen said that the Riksbank’s forecasts indicate that the interest rate may rise a bit further and stay high for a significant period of time. It can also be noted that the Riksbank will increase the number of interest rate meetings from five to eight a year starting in 2024. A more frequent meeting schedule will give the Riksbank better opportunities to adapt monetary policy to the prevailing state of the economy. At the end of the month, the Riksbank also started to hedge parts of the foreign exchange reserve which led to an initial strengthening of the Swedish krona.

Although credit spreads widened on an aggregated level, this was largely offset by the high all-in-yields that currently prevail. Moody´s cut the credit rating for the credit management company Intrum from Ba3 to B1, which led to falling prices for Intrum bonds. SBB signed a deal in which it will sell a small share of its holding in the subsidiary Educo to Canadian Brookfield. Educo will at the same time repay a substantial part of a shareholder loan to SBB. The deal means that SBB will no longer be able to consolidate Educo in its P&L statement, but at the same time SBB will receive a liquidity injection that significantly reduces the risk of the company not being able meet their refinancing obligations during the coming years. Bond prices in the Danish company Georg Jensen surged after the company was acquired by the Finnish Fiskars group. This gave a positive performance contribution to Simplicity High Yield. Primary market activity was high but it is obvious that investors are somewhat cautious as many processes take longer time and some are not closed at all. However, this does not necessarily have to be negative as the bond terms are often changed in favor of the investors.

All funds with a Nordic focus, Simplicity Likviditet, Simplicity Företagsobligationer and Simplicity High Yield, had a strong performance and rose by 0.43%, 0.62% and 0.59% respectively. Simplicity Global Corporate Bond was affected by the higher volatility in the international market but nevertheless rose by 0.18%.