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

The Nordic stock market will continue to be dominated by major global events. Although Trump, the Fed and Brexit are most noticeable in the news, the current weakness is primarily an expression of investor concerns about the economy and earnings growth. A trade war and higher interest rates could certainly impact growth, but neither the scope of the new trade barriers nor the level of interest rates would be sufficient to significantly impair a solid economy. What the market is struggling with is the risk of these disturbances coinciding with a natural slowdown after almost ten good years, and that combination is especially toxic. It remains to be seen whether we are heading for a real recession or whether this is simply a temporary slowdown. The fund holds a net exposure of around zero and the risk is relatively low in this uncertain environment.

Catella Nordic Long/Short Equity fell 2.35 % in December. Stock markets were generally very weak this month. H&M fell sharply, partly on the back of weakened sentiment towards the sector following the ASOS profit warning just before Christmas. Oil-related holdings also fell as low oil prices led many sector investors to vote with their feet. The valuation of many oil service companies is now at very low levels and their share prices have factored in plenty of disappointment going forward. The fund also had a holding in Hoist, which issued a profit warning when the Swedish FSA upped risk weightings on troubled debt. As a counterweight in the portfolio, the fund has short positions and derivative hedging. Weak markets are the best environment for these holdings, and the derivative hedges in particular have generated good returns.