Portfolio manager comments — Q4 2024
Global rates rose in Q4 despite additional rate cuts from the US central bank (Federal Reserve), the European Central Bank, and the Riksbank. After concerns about a recession dominated Q3, the risk appetite returned in Q4. Strong economic data, most notably in the US, caused the market to make downward adjustments to the expectations for future rate cuts. The results of the US presidential election were an additional driving force behind the upturn in interest rates. The market interpreted Donald Trump’s victory as a signal providing support to risk assets but also a risk for higher inflation in the US. However, the performance in Europe was marked by the uncertainty related to possible US tariffs on European products, which could hamper the already weak economic growth. The upturn in interest rates was therefore not as dramatic in Europe. Our baseline scenario during the year has been that the global economy is entering a weaker phase, that valuations on risk assets are strained, and that we are facing a weaker labor market ahead. Consequently, the fund was positioned for lower interest rates and steeper yield curves between two and ten years, which weighed on the returns slightly during the quarter. Focus in the eurozone was on the political developments in France, where the government was unsuccessful in obtaining approval for a budget. Prime Minister Michel Barnier lost a confidence vote and was replaced by François Bayrou. This political instability has led the fixed income markets to lose confidence further in the country’s ability to manage the growing government debt. The fund is underweight in French assets, which contributed positively to the relative returns.