Fund performance was positive during Q1 2024. The period was marked by increased risk appetite and positive performance in the equity and credit markets. The central banks’ reversal on rate cuts at the end of 2023 eased the financial environment. Together with an expansive fiscal policy, increased liquidity and US consumers that remain strong, the sentiment has strengthened expectations for further strong corporate earnings. The fund’s holding in corporate bonds was therefore the strongest positive contributor to returns.
Inflation data was higher than forecast during Q1 and it is not difficult to identify unsettling upside risks. Central banks were therefore forced to signal that they are in no hurry to cut rates, which led to rising market rates.
The fund has had a small position for lower short- to medium term rates in the US since year-end 2023, which had a negative impact on returns. Our baseline scenario continues to require a recession even in the US to bring the inflation rate down to a sustainable level. In the absence of a recession, inflation will likely rise again. We also believe that long-term rates will hold, despite cuts to key rates, due to an increased supply and higher risk premiums. The fund is therefore retaining the large positions for steeper yield curves between two and ten years in the US, Europe and Sweden. These positions had a negative impact on returns during Q1. On the positive side, the fund had positions for a higher 5-year rate in Sweden relative to Germany, which had a positive impact on returns.