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.

Fund manager comment

October was as black as night for world stock markets, with the MSCI World Index falling 7 percent. Europe was the best performing major region in relative terms. The VINX Nordic index fell 7.1 percent.

Reported US economic data has been good, with one example being a fall in unemployment to 3.7 percent, the lowest number since 1969. Europe and China are seeing cooler signals, and China reported its lowest GDP growth since 2009. Given its softer growth, China has implemented a series of stimulatory measures, including this month a proposed halving of the tax on small car purchases.

Catella Nordic Long Short Equity performed very weakly this month, falling 7.5 percent. The main reason for the decline was that our long holdings in the energy sector greatly underperformed the market, from having been the winners before this month’s downturn. Outotec fell sharply when it announced information about a problem with one of its projects. It is currently too early to determine where the responsibility lies, and the company will provide additional information when it becomes available. The stock has recovered from its slide. Our short positions are mainly in companies with very high valuations, and even though these fell and made a contribution, they were not impacted to the same extent as the wider market.

We reduced our holdings this month in Outotec and energy-related stocks. Our view is that October’s decline was a correction similar to those we have seen in recent years, but it is important not to be overconfident since large stock market falls have historically been an early indication of a weaker economy. Our fundamental view, however, is that the economy will remain strong and that many Nordic companies are attractively valued.