Commentary from the Fund Managers
During November, the development of global stock markets was mixed. U.S. stock markets continued to perform strongly, driven by expectations of tax cuts and deregulation anticipated to boost corporate profits. In Europe, however, the trend 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. stock 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 European companies being subject to more takeovers and acquisitions.
Looking ahead to 2025, we expect a significantly stronger consumer, with more money in their pockets thanks to lower interest rates and tax cuts. This is expected to particularly benefit consumer-focused companies. We also anticipate continued strong earnings growth during the year. Generally, the increased risk appetite resulting from lower interest rates should support investments in small and medium-sized enterprises, where we see particularly attractive valuations.
Geopolitical tensions persist, but there is hope for a potential resolution between Russia and Ukraine. Such a resolution would be highly positive in many ways, not least for global stock markets.
Global Economic Outlook
Despite political uncertainty, war, and conflicts, global growth shows stable development, with an expected annual growth rate of just over 3% between 2024 and 2026. Lower inflation, rising real wages, and declining interest rates contribute to strengthening growth. JP Morgan's global manufacturing PMI rose to 50.0 in November, from 49.4 in October, with a figure above 50 signaling growth.
The U.S. economy continues to exceed expectations, with household consumption sustaining growth. The Consumer Confidence Index increased to 111.7 in November from 109.6 in October. The labor market also developed as expected in November, with unemployment at 4.2%, compared to 4.1% in October. Analysts had forecasted an unemployment rate of 4.2%. Unemployment is expected to gradually increase during 2025.
In Europe, growth remains low. The Eurozone manufacturing PMI fell to 45.2 in November, from 46.0 in October. The German economy also shows weak development, with the IFO Business Climate Index dropping to 85.7 in November from 86.5 in October. However, unemployment remains stable and low at 6.3% in October. Economic growth is expected to gradually increase during 2025–2026, as rate cuts, higher real wages, and a stable labor market support consumption.
Economic Outlook - Sweden
The Swedish economy remains weak but shows early signs of improvement. GDP for the third quarter increased by 0.3% compared to the previous quarter, exceeding expectations. Inventory investments contributed positively to GDP, with industrial stockpiling being the main factor. The manufacturing PMI rose to 53.8 in November from 53.2 in October, marking the fourth consecutive month with an index above 50.0. 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 policy, and rapidly falling interest rates.
Fixed Income Market
In November, interest rates declined 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 yield fell during the month from 4.28% to 4.18%. In Europe, the German 10-year government bond yield declined from 2.39% to 2.09%, while the Swedish equivalent decreased from 2.08% to 1.92%.
The upcoming 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 has noted, "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's key interest rates could land at 2.0% or lower in 2025.
Fund Performance
Kavaljer Quality Focus decreased by 4.4% in November, bringing the year-to-date increase to +9.7%. The corresponding figures for the OMX Stockholm All Share Index (Stockholm Stock Exchange) are -0.7% and +10.0%.
The fund's best-performing holdings during the month were Securitas, Pandora, and Beijer Ref, while the weakest performers were Dustin, RVRC, and Xano.
Changes and Holdings
During the month, the fund reduced its holdings in Securitas. A new addition to the fund is Alleima. The equity allocation was 99%.
