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March proved to be a strong month for micro cap companies*, with a gain of 4.92% for the fund, which is 1.25% better than the fund's benchmark index, the OMX Small Cap Index. OMXS30 rose by 3.67%.
During the period, several companies contributed positively to this rise. Sivers Semiconductors stood out with a return of 36% during March, followed by Bonava with 35%, Logistea with 29%, Klarabo with 26%, Nordic Paper with 24%, and Hoist Finance with 23%.
The fund's strategy is based on following the trend between the equal weightings, with a focus on companies that exhibit low volatility and a clear positive trend. The companies within the trend strategy that performed best during March include CTT Systems and Fasadgruppen (both with 19% returns), Profilgruppen (15%), Softronic, Bergman & Beving and VBG Group (all three with 13%). These six companies, along with several others, have received capital infusions in recent months thanks to their steady positive trends. Many of these companies have scalable business models with the potential for continued strong growth, with VBG Group standing out with an impressive trend and volatility of 31.36%, which is well below the average of 38% of the index** the company is a part of.
The fund carries out equal weighting of its positions every six months, with the next equal weighting planned at the turn of the month April-May. Historically, the strategy of equal weighting a broad equity portfolio has resulted in a higher risk-adjusted return compared to portfolios weighted by market value. This outperformance is because the strategy is better equipped to handle downturns compared to value-weighted portfolios, which often have a high concentration of individual stocks. Since the year 2000, the volatility of the stock market has increased significantly on several occasions, with the OMXS30 falling by more than 10% during ten unforeseen events, such as the VIX short vol crash in 2018, General Electric's profit warning in 2019, the Covid-19 pandemic in 2020 and the conflict in Ukraine in 2022. The fund aims to weather downturns well through equal weighting and even sector exposure.
Interest rate cuts may be delayed due to the weak Swedish currency. The Riksbank has no choice but to await the decisions of the European Central Bank, which meets on 11 April and 6 June. Once the rate cuts are implemented, many small companies are expected to recover significantly. Given today's high financing costs and yield requirements, many small companies are undervalued.
Now is an excellent time to invest in small-caps, which have historically outperformed large-caps over longer periods of time, although they have lagged in recent years. Now the gap is expected to begin to decrease.
Did you know that the Nasdaq Mid Cap Index has the best sector diversification compared to both Nasdaq OMX Large Cap and Nasdaq OMX Small Cap?
*Micro cap companies are those that have a market value that corresponds to less than 0.1% of the total market value on the stock exchange. Today, this corresponds to a company value of approximately SEK 13 billion.
**Nasdaq OMX Mid Cap, companies with a market capitalization below approx. SEK 11bn.
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