Commentary from the Fund Managers
In November, global stock market performance was mixed. U.S. markets continued their strong trend, driven by expectations of tax cuts and deregulation, which are anticipated to boost corporate earnings.
In Europe, however, performance was more subdued. The Stockholm Stock Exchange fell by 0.7%, while the global index increased by 3.7%.
The valuation gap between the Stockholm Stock Exchange and U.S. markets is now one of the largest in two decades. The significant valuation differences between the U.S. and Europe, combined with currency fluctuations, increase the likelihood of more mergers and acquisitions involving European companies.
Looking ahead to 2025, we anticipate a significantly stronger consumer base, with more disposable income thanks to lower interest rates and tax cuts. This is expected to particularly benefit consumer-focused companies. We also forecast continued strong earnings growth during the year. In general, the increased risk appetite stemming from lower interest rates should promote investments in small and medium-sized enterprises (SMEs), where we see particularly attractive valuations. While geopolitical tensions persist, there is hope for a possible resolution between Russia and Ukraine. Such an agreement would have a notably positive impact on global stock markets.
Global Economic Outlook
Despite political uncertainty, war, and conflicts, global growth remains stable, with an annual growth rate of just over 3% expected between 2024 and 2026. Lower inflation, rising real wages, and decreasing interest rates are contributing to this growth. JP Morgan’s global manufacturing PMI rose in November to 50.0 from 49.4 in October, signaling growth (a reading above 50). The U.S. economy continues to exceed expectations, with household consumption sustaining growth. The Consumer Confidence Index rose to 111.7 in November from 109.6 in October. The labor market also performed as expected in November, with an unemployment rate of 4.2%, compared to 4.1% in October. Analysts had anticipated a 4.2% unemployment rate. Unemployment is expected to gradually increase in 2025. In Europe, growth remains low. The Eurozone manufacturing PMI fell to 45.2 in November, from 46.0 in October. Germany’s economic indicators also show weakness, with the IFO Business Climate Index dropping to 85.7 in November from 86.5 in October. However, unemployment remains stable at 6.3% in October. Economic growth is expected to gradually increase during 2025–2026, supported by interest rate cuts, higher real wages, and a stable labor market.
Economic Outlook - Sweden
The Swedish economy remains weak but shows early signs of improvement. GDP for Q3 grew by 0.3% compared to the previous quarter, exceeding expectations. Inventory investments, primarily from industrial stockpiling, contributed positively to GDP. The manufacturing PMI rose to 53.8 in November from 53.2 in October, marking the fourth consecutive month with a reading above 50. The index is now approaching the historical average of 54.3.
Swedish growth is expected to be driven by household consumption, supported by higher real wages, expansionary fiscal policies, and rapidly declining interest rates.
Fixed Income Market
In November, interest rates fell in both the U.S. and Europe, driven by expectations of continued lower inflation and upcoming rate cuts by central banks. The U.S. 10-year Treasury yield declined during the month from 4.28% to 4.18%. In Europe, the German 10-year government bond yield fell from 2.39% to 2.09%, while the Swedish equivalent dropped from 2.08% to 1.92%.
The next interest rate announcements are scheduled for:
ECB: December 12
Fed: December 18
Riksbank: December 19
ECB Council Member François Villeroy de Galhau has stated: "The ECB should keep the door open for a more substantial rate cut in December."
Riksbank Deputy Governor Anna Breman remarked: "If current inflation and economic forecasts hold, it is likely that the Riksbank will continue to lower interest rates in December and during the first half of 2025." Several forecasts suggest that the ECB and Riksbank key interest rates could drop to 2.0% or lower by 2025.
Fund Performance
Kavaljer Investmentbolagsfond increased by 0.6% in November, bringing the year-to-date performance to +13.6%. In comparison, the MSCI World Index posted gains of +3.7% for the month and +19.9% year-to-date.
Top contributors to the fund’s performance in November were Markel, Fairfax, and Berkshire Hathaway, while Xano, Svolder, and VEF underperformed.
Changes and Holdings
The fund reduced its holdings in Fairfax and Johnson & Johnson. A new addition to the portfolio is Flat Capital.
The equity exposure stood at 98%.
