- Advertisement -
- Advertisement -

Related

This Time is Not Different

Industry Report

- Advertisement -

Stockholm (HedgeNordic) – Down 8.6 percent year-to-date through the end of August, Catella Nordic Long Short Equity’s performance “has been disappointing in 2019,” acknowledges portfolio manager Thomas Elofsson (pictured). The main reason behind the underperformance is that “many of the companies we judged to be “cheap” have become even cheaper, and many of the ones we judged to be “expensive” have become even more expensive.”

Catella Nordic Long Short Equity is a fundamentals-based long/short equity fund employing a value-oriented approach to investing. In short, the portfolio management team relies on fundamental analysis to select stocks believed to have deviated from their fundamental fair value, with the fund buying shares considered to be cheap and short selling shares found to be overpriced. “For most of 2019, we have had a net exposure close to zero,” says Thomas Elofsson, Head of Portfolio Management, fund manager and acting CEO at Catella Fonder.

The valuation gap between so-called value and growth stocks has been increasing, and value stocks compared to growth stocks “are now trading more cheaply than during the dotcom bubble of 2000” if considering standard valuation measures such as price-to-book value, price-to-earnings and price-to-sales. On the question of “why are valuations so extreme?”, Elofsson reckons that the answer lies in ultra-low interest rates. “My guess is that this is the most important reason why we are experiencing huge valuation differences between different companies.” Low interest rates may justify higher valuations, argues Elofsson, “but this should affect all assets.”

Companies, governments and households are embracing the opportunity to borrow cheaply, and debt levels are currently the highest they have ever been. “One consequence of this is that growth should be structurally lower going forward since we have used borrowing to consume and invest today what we would have otherwise done in the future,” explains Elofsson. For the above-mentioned valuation gap to continue to rise, “more of the same is likely needed, which means even lower interest rates,” he emphasizes.

“In summary, we do not think it is different this time,” argues Elofsson, adding that “our conviction is that the historical norms that characterise the market will again apply and that relationships between cheap and expensive companies will then shrink.” For that reason, Catella Nordic Long Short Equity’s portfolio remains long in cheap companies and short in expensive ones.

Specifically, the Catella fund had long positions in finance and commodity-oriented companies at the end of August, whereas the sectors with the largest short exposures were industrials and consumer durables. “In these sectors, we find companies that, although very likely to be sensitive to an economic downturn, have not experienced the price trend that has impacted the more cyclical commodity companies,” says Elofsson.

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

Rising Adoption of Quantitative Investment Strategies Among Nordic Investors

From a high-level perspective, there is a clear trend of increasing adoption of quantitative investment strategies (QIS) among Nordic institutional investors, either through the...

EU Plans Stress Test for Hedge Funds and Non-Bank Firms

European regulators are planning a stress test to identify vulnerabilities beyond the traditional banking sector, focusing on less regulated entities such as hedge funds,...

ALCUR Fonder Continues Hiring Spree

Following two earlier additions this year, ALCUR Fonder continues to expand its portfolio management team at a notable pace. The Stockholm-based hedge fund boutique...

Nordic Private Markets Modernize with Data-Centric Trade Lifecycle Automation

By Anders Stengaard Jensen at Indus Valley Partner: In recent years, asset managers in Nordic countries have accelerated efforts to modernize trade operations, particularly...

Norwegian Hedge Fund Industry Sees Major Boost with New Launch

The Swedish and Danish hedge fund industries remain closely matched in size, with Denmark recently edging ahead of Sweden. While still less than half...

Atlant Funds Hold Up in May Despite Mistimed Market Call

Macroeconomic and market forecasts are notoriously difficult, even for experienced hedge fund managers. What matters more than being right, however, is ensuring that incorrect...

Allocator Interviews

In-Depth: High Yield

Voices

Request for Proposal

- Advertisement -
HedgeNordic
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.