Catella Nordic Long Short Equity RC

The fund invests mainly in Nordic equities. The fund applies negative screening for sustainability criteria and consequently avoids long positions in companies that produce tobacco, alcohol, commercial games for money, pornography, coal, or weapons. Derivatives are used in management to protect fund capital and increase return opportunities. The fund is expected, over time, to have low co-variation with the equity market and may thus both raise the expected return and lower the expected risk in a traditional equity and fixed income fund portfolio. The portfolio is structured in two parts, consisting of long and short equity positions respectively, which are both expected to contribute to the fund's characteristics while jointly creating a favourable balance between risk and return. Investments are based on a combination of traditional equity research and quantitative methods. The fund's target is to generate annual return of 5-10% with a standard deviation of 5-10% over time.

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Fund manager comment

February saw a continued recovery for global stock markets following the weak fourth quarter. Nordic indexes rose between 2% and 6% this month. The stock market upturn began with the reversal of monetary policy announced by the Federal Reserve at the end of December and in mid-January, and was driven further in February by hopes of a trade agreement between the United States and China. The market is also pleased that credit expansion has again started in China, enabling it to look beyond the currently weak macro statistics and contemplate an improvement by the end of 2019 and into 2020. It seems likely that macro statistics are currently deteriorating due to a combination of inventory reductions and concern about trade disputes, but these effects could be temporary. Catella Nordic Long/Short Equity fell 0.88% this month. Derivative hedging reduced the fund's return this month in the wake of the strong stock market performance. The best contributors to the month's return were the long positions in Valmet and Hexagon, and the worst contributors were the short positions in Assa, Coloplast and Christan Hansen.

Our exposure has remained cautious. With the stock exchange's valuation back in the range that prevailed before the market slump, we believe it is wise to have a cautious approach to further risk-taking and are keeping the net close to zero − even though we are slowly and methodically building up the gross exposure from low levels, amounting to 135 % at the end of the month. There are some common denominators in the positions taken. We are seeking out companies that are cheap relative to our assessed fundamental value. Furthermore, an interesting theme for 2019 is that we believe that margins are generally too high, especially in an environment where growth continues to slow. We are therefore looking for companies that either initially have lower margins than historically, or companies that we believe will be able to meet cost increases with higher prices on their products and services.