The NESTOR Europa fund moved sideways in the third quarter of 2018, as expected, gaining +0.45% (V class). The unit price has shown a performance of -2.16% year to date (MSCI Europe -0.90%). New positions in the third quarter focused predominantly on Sweden, where we continue to find sufficient stocks with an above-average risk/return profile.
Numerous negative factors in the third quarter
Numerous negative factors kept a lid on performance in the period under review. Apart from the trade conflicts launched by the USA, many emerging market currencies encountered heavy weather. This was also felt on the Milan stock exchange, where yields on Italian government bonds shot up. In addition to the political situation, which encouraged fears of a high-spending government, the general “risk off” mood played an important part. The FTSE Italia Midcap fell markedly at times, but recovered in September.
Stockholm, too, felt the aftershocks from the emerging markets currency turmoil. The Swedish krona has fallen sharply since the start of the year and offset the sometimes considerable price gains euro investors have enjoyed on the OMX Stockholm Midcap Index. Consumer goods manufacturer New Wave released outstanding figures. New Wave thinks its “Craft” special sporting goods brand is on the verge of a breakthrough in the USA and the central warehouse in Germany is “bursting at the seams”. The Swedish IT stocks Acando, Softronic and Knowit are also in excellent shape and appear relatively cheap compared to the European sector.
Outlook: rising risk spreads call for prudence
Stock selection will become increasingly difficult after the long bull market. We still feel selected technology stocks offer opportunities, especially if the valuation is reasonable. High-value branded goods like sports and luxury items should also remain in demand. The risk/return profile for cyclicals, by contrast, is unfavourable, although a degree of economic weakness is already priced in. The high level of pessimism in recent months also offers the chance of a positive surprise towards the end of the year, provided the market finally “accepts” the decisions about new Italian borrowing. A close eye needs to be kept on this.