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Market overview
August 2024 was a month filled with events that affected both the global and Swedish markets. At the beginning of the month, markets fell sharply due to an unexpected interest rate hike in Japan and poor employment figures from the US. Japan was hit hard, creating unease in markets globally. However, at the end of the month, markets started to recover as central banks such as the FED and BoJ hinted that interest rates could be cut soon, reassuring investors. The Swedish stock market followed the same pattern with an early decline which later turned upwards. Swedish stocks reacted positively to the central banks' signals about possible interest rate cuts, but there was an underlying concern over weak global economic growth.
Recently, the IT sector has had challenges with high valuations, which has created pressure on share prices. The resilient US economy and large investments in areas such as AI have contributed to IT companies, especially the large US players, being traded at high P/E numbers. In recent weeks, the stock market has shown a rotation away from large tech stocks towards value and small-caps as investors looked for better valuations in other sectors. Real estate and healthcare are two sectors that have delivered strong returns and we have seen positive results from these sectors in our portfolio.
Index comparison
Finserve Micro Cap has OMX Small Cap GI as the benchmark. The difference between larger small companies and smaller small companies is still large and can be measured by looking at the large cap*** and mid cap index** compared to the small cap index*. The difference is significant regardless of whether one looks at 1-year, 2-year, 5-year or 18-year history. Between the mid cap index and the small cap index, the difference on 2-year history is 38 percentage points, an increase of 13 percentage points from last month. The difference has never been so great since or index started, 2006.
*Small Cap Index: Company value less than approximately SEK 1.5 billion.
**Mid Cap Index: Company value between approximately SEK 1.5 and 12 billion.
***Large Cap Index: Company value greater than approximately SEK 12 billion.
August month
The stock market was plus or minus zero during the month. The NAV rate for the fund's A class was 117.53 in August. The fund's A class lost 1.28% in August and since the beginning of the year has returned 11.89%, which is 6.74 percentage points better than the fund's reference index OMX Small Cap. OMX Small Cap GI went down by 3.91% and OMX 30 GI by 0.5% during the month of August.
| August | This year | Since the foundation's inception | |
| OMX 30 GI | -0,01% | 13,93% | 19,3% |
| OMX Small Cap GI | -3,91% | 5,14% | 10,35% |
| Finserve Micro Cap A | -1,28% | 11,89% | 17,53% |
Best and worst entries in the portfolio
Best contribution (Weight in the portfolio):
| Company | Contribution % | Weight % |
| Catena Media PLC | 8,73% | 1,06% |
| Acrinova | 8,20% | 1,24% |
| Brinova Fastigheter AB | 7,31% | 1,05% |
| John Mattson Fastighetsföretagen AB | 6,87% | 1,22% |
| Conecjo AB | 6,69% | 0,93% |
Worst company (Weight in the portfolio):
| Company | Contribution % | Weight % |
| Linc AB | -2,92% | 1,18% |
| Medcap AB | -2,84% | 1,30% |
| Precise Biometrics AB | -2,13% | 0,18% |
| Arla Plast AB | -1,98% | 1,05% |
| Wall to Wall Group AB | -1,75% | 0,74% |
Forecast
We may have to wait until the fall before the market stabilizes, provided the geopolitical risk decreases. It will be an exciting month where the ECB, FED and Riksbank issue interest rate announcements. The ECB is already out this week. The expected picture is that all three will lower the policy rate.
We believe that falling yield requirements and together with future interest rate cuts will affect the smallest small companies more than larger small companies and large companies. The real estate sector stood strong in market turbulence in August and continues to show the trend during September. We are seeing signs of a recovery from low levels. We believe that the real estate sector together with med-tech will recover the fastest when interest rates are lowered and risk appetite is back. The IT and Industry sectors will also benefit, but the interest rate effects are expected to occur in 4-8 months.
Now is an excellent time to invest in "genuine" small companies.
Strategy
The fund carries out equal weighting of all positions every six months. Historically, the strategy of equal weighting a broad equity portfolio has resulted in higher risk-adjusted returns compared to broad market value weighted portfolios. This outperformance can be attributed to the strategy's ability to better handle downturns, unlike value-weighted portfolios which are often heavily concentrated in individual stocks.
The fund's goal is to perform a good risk-adjusted return, offer equity exposure to companies that few other funds own. The strategy is based on trend-following investments between the equal weightings, with a focus on companies that show low volatility and a clear positive trend. The portfolio currently consists of approximately 127 listed companies with a market value of less than 0.1% of the Stockholm Stock Exchange's market value of all companies, which today amounts to approx. 12.6 billion. The portfolio's average company value is approximately SEK 3 billion. This value is significantly lower than the average among competitors' micro cap and small cap funds. Thanks to regular equal weighting, the trend strategy and the fact that the fund is one of the few fund owners in many of the companies, the fund has a low correlation with traditional micro cap and small cap funds.
Did you know that?
Global stock markets have historically been weak during September, which can be said to be the case this year as well.
Source: Nasdaq.com ( https://www.nasdaq.com/articles/heres-the-average-stock-market-return-in-every-month-of-the-year)
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