Large-cap rally continues, mixed performance for small caps
February saw continued very strong performance for large-cap indices, while small-cap indices only showed a modest rebound – with large variations between companies. The broad Stockholm Stock Exchange (OMXSPI-GI) rose by 4.5% and the global index (Dow Jones Global Index) by +1.5%.

At the same time, the rise in the Stockholm stock market has not been broad. Only about 30% of the stocks in OMXSPI have risen this year. Despite the feeling that “the market is rallying”, the majority of Swedish stocks are therefore down so far this year.
Fund flows create a record-wide discrepancy in company valuations
Since mid-last year, large outflows from small-cap funds have created forced selling pressure, where funds are compelled to sell shares that they are actually positive about. Every forced sale in illiquid small caps has a significant impact, as the buy side already consists of battered retail investors who no longer have the appetite to “buy the dip” – resulting in particularly large movements on earnings days.

Serial acquirers operationally strong but held back by multiple contraction
Many small-cap funds have been overweight in serial acquirers, which has made these companies “liquidity cushions” during fund outflows. Operationally, however, Swedish serial acquirers are showing underlying resilience, with a cautiously improving market environment, good organic order intake, and improving margins.

Large swings in NAV discounts among investment companies create opportunities
The past year has seen large swings in NAV discounts/premiums among listed investment companies. While the ability to grow net asset value over time remains the most important criterion, the timing of NAV discounts can be an important factor for generating excess returns. Investor, for example, is currently trading at a record-low discount while its three largest listed holdings (ABB, Atlas Copco and Saab) are trading at record levels.

While we are therefore taking the opportunity to reduce our position in Investor, we see opportunities elsewhere – not least in Latour, whose valuation is lower than it has been for many years, while its holdings remain fundamentally strong.

Read the full monthly report with company comments and more in the attached file.