Fund performance was positive during the quarter and the fund rose 2.73% in SEK. The central banks’ reversal on rate cuts at the end of 2023 eased the financial environment. Q1 2024 was thereby marked by an increased risk appetite and positive performance in the equity and credit markets. As a result, European rates declined in countries that are considered to be more risky, such as Italy, in comparison to countries deemed to be less risky, such as Germany.
The fund’s overweight in Italy during a large portion of the quarter was positive for returns. Interest rate spreads at the end of the quarter were traded at historically low levels, which led us to close this overweight and take profits from this position at the end of March. The timing of this was good, given that the trend has turned.
Portugal’s credit rating was also upgraded during the quarter from BBB to A. The journey has been long for the country since it was hit hard during the euro crisis and is already being traded at relatively low rate levels. Consequently, these levels have not moved significantly. The fund held a neutral position in Portugal during the quarter.
Inflation data in the US was higher than forecast and it is not difficult to identify unsettling upside risks. The fund has been positioned for lower short- to medium term rates, which had a negative impact on returns. We also believe that long-term rates, despite cuts to key rates, will hold up as a result of an increased supply and higher risk premiums. The fund is therefore retaining the positions for steeper rate curves, although the positioning has been moved from two relative five years to two relative ten years, as this better reflects this outlook. This position had a negative impact on returns in the period.