Skip to content Go to main navigation Go to language selector
2 October 2018, Sweden | Mutual Funds | News

Catella Balanserad – Five stars from Morningstar

The Catella Balanserad fund has long offered good returns and was recently awarded five stars by Morningstar in 3 and 5 years (21 September 2018). The fund has a global perspective and consists of all asset classes. According to fund manager Ola Mårtensson, stocks are generally not expensive yet − not even in the United States. And for the first time in several years, it may be the moment for a comeback for Japanese companies.

Catella Balanserad is a fund of funds, which means it is made up of a combination of other funds. In areas where Catella Fonder is active, these funds provide the selections, while other markets are covered by buying exchange-traded funds (ETFs).

Catella Balanserad typically consists of 50 percent equities, 30 percent fixed income and 20 percent hedge funds. This use of hedge funds distinguishes Catella Balanserad from most other similar funds, something that Ola Mårtensson highlights as a factor in its success.

"This is one of the few funds of funds able to realistically offer hedge funds, which means that when Morningstar evaluates the fund, the returns are good and the volatility is quite low. We can use Catella's own products and put together something really good," he says.

How far can you push your bets? Can you go 100 percent shares and completely ignore fixed income or hedge funds?

"No, the fund rules say that I can have a maximum of 75 percent shares and a minimum of 25 percent. In practice, you have to stay away from the limits since even a small movement in prices would cause a breach of the fund rules," says Mårtensson.

Are you completely free to choose the global equity allocation?

"Yes, there are no restrictions on that. Looking at the portfolio, it has an overweight in Sweden, which is a fairly narrow and small market. The limitation is really in terms of risk; how many Swedish stocks we can allow ourselves to have."

At present, the fund's holdings in hedge funds are slightly higher than the 20 percent standard allocation – Ola Mårtensson says around 26-27 percent. And the distribution of equities is not neutral either; at the start of the year the fund had a 7 percent overweight in emerging markets and Asia – an overweight that has now been completely closed.

"I started the year with a fairly big underweight in the United States and Sweden, while the US is now quite a big overweight. But this has been reduced in recent weeks. Sweden has long been the biggest underweight, but I have now almost closed this. If we look right down into the portfolio it is regularly reallocated, not every day but often," says Mårtensson.

What are the underlying driving forces?

"I'll start at the top: how do we choose whether to have a lot of equities, fixed income or hedge funds? There are two considerations. The biggest returns and the biggest risks come from equities. Right now, with such low interest rates, the difference between the expected returns on shares and fixed income is huge. Once you have decided how many shares to have, 90 percent of the portfolio decisions have been made. When it comes to shares there are two things to consider: profit growth and valuation," says Mårtensson.

Is this the classic p/e ratio?

"To a large extent, yes. But something I think about a lot is when you break down the valuation into how much comes from margins and how much comes from sales. Looking at p/e alone, the market is not at all challenging in terms of its pricing," says Mårtensson.

Many people would probably say that US stocks are expensive.

"There are individual stocks that are amazingly expensive, such as Amazon. But in terms of p/e ratios the US stock market as a whole is not challenging when it comes to its pricing. What would make it expensive is if the margins appeared unsustainable."

Ola Mårtensson points out that Facebook, Amazon, Apple, Netflix and Google (known as the FAANG companies) account for a very large part of this year's stock market upturn. Together, these companies account for over 40 percent of the upturn, which has been global. And if we add Cisco, Microsoft and a few more the proportion is over 50 percent.

So far this year, the return on Catella Balanserad has been just over 5 percent, which roughly corresponds to half the stock market return in Sweden. The fund has some structural overweight in Sweden, but the big change recently comes neither from Sweden nor the United States, but instead from a country that has long been something of a global laggard in terms of its stock market: Japan.

"I have been underweighted in Japanese shares for I do not know how many years, but this underweight is now closed. I have bought Japanese equities," says Mårtensson.

The fund manager justifies buying Japanese equities by rising company profits in that country, while company valuations have lagged behind.

"Profits have grown in Japan while valuations and share prices have failed to keep pace. One might imagine that everything is expensive in Japan, but if you have been to Tokyo in recent years you will know that it is not at all expensive – it is cheaper than Stockholm. And the same goes for the stock market. Japanese companies have rather attractive valuations," says Mårtensson.

When it comes to the future allocation of US, European and Asian Equities, Mårtensson remains sceptical about Europe's performance. Although the region's limited companies have low valuations, there is a reason, he believes. The trend so far has been for the fund to cut its overweight in the United States since it has performed so well. The same goes for Sweden: Sweden has been weak compared to international markets, but is now starting to catch up.

"What remains is Europe, which has a very low valuation. But this low valuation has a reason, which is the very much weaker growth. For example, profits for US listed companies have doubled since just before the financial crisis, while their European counterparts are struggling to get back to where profits were eleven years ago. I think there is something structural in the European economy that means it simply does not grow as quickly," says Mårtensson.

Mårtensson can also influence the distribution of equities between large and small companies. This was something he did particularly often during 2015-2016, when small caps accounted for most of the fund's Swedish equities. This was a successful move since 2015 was not a great year for stock markets as a whole but many small companies did well. But the fund now has much fewer small caps, according to Mårtensson.

What is the most important consideration for this fund? Is the main focus on growth or on volatility and risk?

"At the moment we take account of both – there has been a fairly long period of growth and, in a normal economic cycle, there would have been a recession already. With its design, being able to have 30 to 70 percent equities, we box in the fund's risk fairly well. I think our first consideration should always be the returns. Then we have to make sure that what we have planned is not side-lined in terms of risk," says Mårtensson.

Looking at the fund as a whole, the proportion of fixed income investments is lower than in a standard structure. Ola Mårtensson says this is quite simply because this money is needed to pay for the other positions. Current interest rates also mean that traditional fixed income investments are overshadowed by a larger variety of credits.

When it comes to the fund's holdings in alternative investments (hedge funds), Mårtensson's philosophy is to keep the investments fairly static over time, which is explained by their function in the portfolio as a kind of collateral.

"I have had a split between Catella Hedgefond and Catella Nordic Long Short Equity, and I do not really take a stance of which of the two funds will perform best. The idea is for these to make a contribution to returns in the good times, so that they justify themselves rather than fixed income, and in a downturn they should be something of a cushion. This component is more like a kind of insurance, rather than an allocation play, and it should not cost too much."

Ola Mårtensson is also responsible for Catella's asset management allocation and model portfolio. He also uses the principle of working from the top down for this. He starts by looking at the earnings expectations for the different markets and the valuations of these markets.

"The interesting thing is the change in earnings expectations. For example, when tax cuts were made in the United States the earnings expectations hit the roof. You clearly want to long that: if profits are growing vigorously you want to own equities, unless they are really expensive. Then comes the next level: what could cause profit expectations change? That's when macroeconomic indicators come in," says Mårtensson.

In conclusion, Ola is upbeat about the stock market and expects company profit growth to favour equity investments. Catella Hedgefond stands out with its larger proportion of alternative investments, which provide a cushion if there is stock market weakness as well as the potential for returns at lower risk when the returns on fixed income securities are low.


Ola Mårtensson

Senior Business Development
Direct: +46 8 614 25 79

Mikael Wickbom

Senior Sales Manager
Direct: +46 8 614 25 51

Risk information

Investments in fund units are associated with risk. Past performance is no guarantee of future returns. The money invested in a fund can increase and decrease in value and it is not certain that you will get back the full amount invested. No consideration is given to inflation. The Catella Balanserad, Catella Credit Opportunity and Catella Hedgefond funds are special funds under the Swedish Alternative Investment Fund Managers Act (SFS 2013:561) (AIFM). Catella Sverige Aktiv Hållbarhet and Catella Småbolagsfond may use derivatives, and the value of the funds may vary significantly over time. The value of Catella Sverige Hållbart Beta may vary significantly over time. Catella Avkastningsfond may use derivatives and may have a larger proportion of the fund invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds, in accordance with Chapter 5, Article 8 of the Swedish Investment Funds Act (SFS 2004:46). Catella Nordic Long Short Equity and Catella Nordic Corporate Bond Flex may use derivatives and may have a greater proportion of the funds invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds. For more details, complete prospectuses, key investor information, and annual and half-yearly reports, please refer to our website at or phone +46 8 614 25 00.

This website uses cookies as described in our Cookie Policy. To see what cookies we serve and set your own preferences, please use your web browser's settings. Otherwise, if you agree to our use of cookies, please continue to use our website.