Fund management results with sustainability in focus!

The fund dates back to 1998, but has been given a new name and new focus this year and is now managed by the team of Anna Strömberg, Henrik Gripenvik and Henrik Holmer. Anna Strömberg, who worked for Nordea for several years as a fund manager of Swedish and global equities, also worked with sustainability issues at the bank recently and now, with Catella Sverige Aktiv Hållbarhet, it is time to implement the ambitions.

"What attracted me was to work with both management and sustainability aspects, and really see it making a difference in the portfolio. Not to build a separate structure, but rather to work fully integrated. It's very exciting to see the business opportunities that are being created", says Anna Strömberg.

When the fund managers sat down at the drawing board, they thought about how sustainability issues could be handled in a way that creates value for the unit holders. Sustainability issues are usually about risk and market intelligence analysis, but the team chose to focus more on opportunities and business models. On identifying companies where sustainability is a value driver for the business and selecting companies that profit from sustainability.

Henrik Gripenvik, who has worked as an industry analyst and covered many Nordic companies, feels that the trio complement each other well.

"I have worked a lot with fundamental company analysis. There has been increasing interest from the investor community, as well as from the companies themselves, and there are issues that are discussed regularly", he says.

Henrik Holmer, who has been at Catella since 2005 and been a member of the old Catella Reavinstfond team since 2010, describes the old fund as a traditional Swedish equity fund.

"The fund started in 1998 and has developed well. For the past three years, however, it has experienced a weaker development compared to index and we felt it was time to re-profile the fund. It seemed natural to add sustainability to the fund's profile", he says.

Anna Strömberg describes how the team sees the concept of sustainability from three different angles: what to invest in, what not to invest in and the company's internal work.

"We want to be clear about what we are investing in and that means making a positive selection: recognising opportunities, finding companies that are driven by sustainability and making money from their sustainable products and services. But it’s also important to be clear about what we do not invest in. Therefore, we have chosen to exclude controversial products and services that contradict our sustainability philosophy. We also constantly monitor the companies' internal sustainability efforts", she says.

Companies with sustainability as their business approach; can you tell me more about that?

"We are primarily looking for companies whose entire business idea is driven by these issues. Take Finnish Outotec that we have in our portfolio: it’s a company that helps mining companies extract metals from mined ore and may not be an obvious sustainability case," says Henrik Gripenvik, and continues:

"But we think it has many relevant sustainability themes, such as energy efficiency and reduction of greenhouse gases. Outotec helps its customers increase productivity by extracting more metal from the same amount of mined ore, while at the same time using significantly less natural resources, such as water and electricity, and also less chemicals. It seems like a very interesting sustainability angle. Also, purely financially it's a really interesting case within the mining industry, where all clients have reduced investments over a number of years, which has led to older equipment and big investment needs ".

But do we have companies that focus solely on sustainability as well?

"Yes, technology is often the key to more effective solutions. One example is Nibe, whose entire business idea is to sell energy-saving solutions that replace oil, gas and electricity for heating. If we look at the types of global challenges we face, Nibe has a very intelligent response to several of them. Tomra is another - their entire business idea is based on recycling metals. They are both examples of pure sustainability companies where it is clear that sustainability is at the heart of the business," says Anna Strömberg.

The fund management trio point out that they are looking for "upside potential", that is, one or more factors of which the market is not yet fully aware and which may increase the company's stock price in the future. There are no shortcuts here; knowledge acquisition is what is required. Sustainability focus can increase knowledge and provide greater accuracy. A share with strong sustainability aspects but with too high a valuation is not given a place in the portfolio specifically on sustainability aspects.

Then you have a group of companies that are extra attractive with sustainability as clear value drivers. Can you give examples of companies that perhaps may not have a clear sustainability angle?

"Take SOBI for example. The pharmaceutical industry has received a lot of criticism for high prices, which means that not everyone is able to get access to important medication. SOBI researches unusual diseases - so-called orphan diseases, which affect a small proportion of the population, but where the stricken often need care throughout their lives", says Henrik Holmer, and goes on to describe what that means for SOBI.

"Their largest area is haemophilia, where there is a huge need for care. 75 per cent of those who suffer from haemophilia do not have access to the care they need. Here, SOBI has a drug that they sell in the US and have now also started selling in Europe and in emerging markets. Sales are growing rapidly; they were up 85 per cent in the first quarter compared to the last quarter of last year. The interesting thing about SOBI from a sustainability perspective is that it has chosen to set the price of the product from a patient perspective instead of what pharmaceutical companies usually do, at as high a price as possible. A lower price level also reaches more patients. An effective product that helps the patient and reaches its patient group"

But you have also chosen to exclude some companies?

Sustainability in the name creates obligation. "When we say we have a sustainability fund, we need to relate to our customers' ethical attitude. We draw a line at controversial products that we do not consider to belong in a sustainability fund. That is tobacco, alcohol, pornography and gaming companies. We have also chosen to exclude production and extraction of fossil fuels, however not the service companies. Oil service companies can certainly be suitable for our fund if they have a solution that makes production and extraction more environmentally friendly and efficient", says Anna Strömberg.

Henrik Holmer points out that at least in Sweden, the proportion of companies that are excluded is not huge.

"Around 3.5 per cent of the whole index is excluded. We don't have much oil production, but we do have some gaming companies and some tobacco companies".

We don't believe that it costs anything to exclude these companies, but we also don't think we create value through an exclusionary strategy.

The stock market has pulled up quite a lot since the turn of the year and last year was strong - we've had a fairly strong stock market since 2011, when there was a brief dip. Is the market expensive?

"You could say that currently multiples are quite high. There is a lot of political uncertainty and also some doubt about where the economic cycle is heading. We have chosen to keep a slightly higher cash level in case there is a downturn", says Henrik Gripenvik.

He adds, however, that there are also things that speak to the opposite.

"We are in a phase where we are starting to see increased earnings estimates for many companies. We haven't seen positive adjustments of market expectations in a long time. We are still only at the beginning of the phase so it may be stronger than we think.

In recent years, there has been more driving force in small companies than in large. Has this fund historically had more large and medium-sized companies?

"Small companies have performed better for a relatively long time and have a premium rating compared to large companies. But earnings growth has also been stronger among small companies. The fund has increased its investments in small companies as well as in companies in the rest of the Nordic countries. That increases the choice of companies with a sustainability angle, but it is important to be selective", says Henrik Holmer, pointing out that it is the share price potential that controls the holding.

Listen to the latest podcast about sustainability.

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Important information
Investments in fund units are associated with risk. Historical returns are no guarantee of future returns. The money invested in the fund can both increase and decrease in value and it is not certain that you will get back the full amount invested. Inflation is not taken into account. Catella Balanserad, Catella Credit Opportunity and Catella Hedgefond are special funds under the Alternative Investment Fund Managers Act (2013:561 - LAIF). Catella Sverige Aktiv Hållbarhet and Catella Småbolagsfond are permitted to use derivatives, and the value of the funds may vary significantly over time. The value of Catella Sverige Index may fluctuate significantly over time. Catella Avkastningsfond is permitted to use derivatives and to have a larger proportion of the fund invested in bonds and other debt securities issued by individual government and municipal authorities and within the EEA than other mutual funds, in accordance with Ch. 5, Section 8 Mutual Funds Act (2004:46). Catella Nordic Long Short Equity and Catella Nordic Corporate Bond Flex are permitted to use derivatives and to have a larger proportion of the funds invested in bonds and other debt securities issued by individual government and municipal authorities and within the EEA, than other mutual funds. For more information, a complete prospectus, fund fact sheet, annual report and semi-annual report, please visit our website catella.se/fonder or call us at +46 8-614 25 00