Fund performance was positive during Q1 2024 and the fund rose almost 7% in SEK. After the strong close to the stock market in 2023, Swedish equities began the year more tentatively, driven primarily by the upward trend in long-term rates after the sharp downturn in the autumn. The stock market gained new momentum in time for the release of the quarterly reports at the end of January and rose essentially throughout the remainder of the period, even though profits were more or less in line with expectations. The major drivers are the expectation of rate cuts due to declining inflation, together with continued strength in economic growth in the US.
Electrolux Professional was the most notable contributor to returns and rose 27% after a strong quarterly report as well as the acquisition of the Japanese company Tosei. Additional positive contributors included Afry, which unexpectedly presented a higher profitability, as well as SEB, which declared higher than expected distributions to shareholders. Ericsson, H&M and Truecaller were the main negative positions in the period. The smallest common denominator among all of these holdings is that they all presented quarterly reports that lowered expectations for Q1 2024, while they are retaining an optimistic outlook for the full year. H&M was vindicated to some extent when the company exceeded analysts’ profit forecasts by over 50%. The fund sharply decreased the holdings in SEB and SHB after strong share price performance at the beginning of the year. The position in Volvo Car was also reduced. We made the largest increases to the positions in SCA, Sweco and Bravida.
The valuation multipliers in Swedish equities are currently at levels that can be considered to be normal and the boost in prices going forward should come from higher profits. We therefore expect the market to move sideways before investors begin to look toward 2025 and encumber higher profits next year. But there are companies even in this scenario that provide the potential for strong performance in the near term.
The fund changed its name on 20 March from Sverige Tema to Sverige. This change provides more liberal investment rules and enhanced opportunities to invest in more value-based equities, although we continue to identify long-term structural growth. We prefer growth companies and avoid unprofitable companies with high debt and business models that are unable to manage the prevailing interest rate levels.