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Kavaljer
Investmentbolagsfond
January 2025
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Active management at almost the cost of an index fund
Kavaljer Investmentbolagsfond is an actively managed equity fund that takes an index-independent approach, investing long-term in Swedish and foreign investment companies and conglomerates, primarily in Sweden and the USA.
Investment companies and conglomerates are entities that invest in other companies while actively supporting their development. These types of companies offer several advantages: active ownership, effective risk diversification, and often attractive dividends. Additionally, investment companies with listed holdings are sometimes traded at a discount.
Through the Investmentbolagsfond, investors have a low-cost opportunity to benefit from the growth of a broad range of high-quality companies, both large and small, operating worldwide. The fund is available on platforms such as Avanza, Nordnet, and SAVR, as well as through banks and institutions trading via MFEX and Allfunds.
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Commentary from the Fund Managers
January was a strong month for global stock markets, driven by optimism surrounding interest rate cuts and improving economic prospects. The Stockholm Stock Exchange (OMXSPI-GI) rose by 7.5%, while the Dow Jones World Index increased by 2.9%.
Unlike in 2024, the tech sector was weak. The Chinese AI developer DeepSeek launched a cost-effective AI model with Western-level performance, creating uncertainty around major AI investments and putting pressure on market leaders. Instead, cyclical companies, industrials, and commodities led the market rally, with the financial sector emerging as an unexpected winner following strong quarterly reports.
The earnings season for the fourth quarter of 2024 has begun with several positive statements from listed companies regarding the outlook for 2025. We expect earnings growth of 10% for the year, and dividends to shareholders are anticipated to reach record levels. Valuations are particularly attractive among mid- and small-cap companies, which makes us remain optimistic about the stock market in 2025.
Global Economic Outlook
Early indicators suggest that global growth is on an upward trajectory. The International Monetary Fund (IMF) expects global GDP growth of 3.3% in both 2025 and 2026. Lower inflation, rising real wages, and falling interest rates are contributing to stronger growth. JP Morgan’s global manufacturing Purchasing Managers’ Index (PMI) improved from 49.6 in December to 50.1 in January, signaling expansion.
The U.S. economy continues to perform well. The manufacturing PMI rose from 49.2 in December to 50.9 in January. The labor market remains stable, with an unemployment rate of 4.1% in December. However, a slight increase in unemployment is expected during 2025.
In Europe, growth remains weak. The Eurozone’s GDP was unchanged in the fourth quarter compared to the previous quarter, while the manufacturing PMI rose from 45.1 in December to 46.6 in January. Despite the weak figures, unemployment remains low and stable at 6.3% in December. Growth is expected to gradually improve in 2025–2026, supported by interest rate cuts, rising real wages, and a continued stable labor market, which could drive consumption forward.
Economic Outlook - Sweden
The Swedish economy remains weak, but there are clear signs that the business cycle is turning upward. The manufacturing Purchasing Managers’ Index (PMI) rose to 52.9 in January from 52.4 in December, indicating continued growth. Additionally, the National Institute of Economic Research’s economic sentiment indicator increased slightly to 97.7 in January from 97.5 in December.
Household purchasing power is expected to strengthen in 2025 due to rising real wages, lower interest rates, and some improvement in the labor market. This suggests an accelerating consumption rate during 2025–2026.
Fixed Income Market
The bond market showed mixed developments in the U.S. and Europe during January as market expectations for interest rate cuts were adjusted following central bank announcements. The U.S. 10-year Treasury yield declined from 4.57% to 4.54% over the month, while the German 10-year government bond yield increased from 2.36% to 2.46%. Sweden’s equivalent yield fell from 2.36% to 2.18%.
The U.S. Federal Reserve (Fed) kept interest rates unchanged in the expected range of 4.25–4.50%. Fed Chair Jerome Powell emphasized that the central bank is in no rush to adjust rates and that decisions will be made based on economic developments. The market now expects 1–2 rate cuts in 2025. The European Central Bank (ECB) lowered its key interest rate by 0.25 percentage points to 2.75%, as anticipated. ECB President Christine Lagarde stated that there has been no discussion on when rate cuts might end. However, many analysts expect further reductions, possibly down to 2.0% in 2025.
Sweden’s Riksbank cut its policy rate by 0.25 percentage points to 2.25%, in line with expectations. The December forecast remains largely unchanged, but the central bank is prepared to act if inflation and economic conditions shift. Riksbank Governor Erik Thedéen commented that the policy rate has likely been lowered sufficiently. Improved economic activity towards the end of 2024 supports this assessment. However, many analysts believe that an additional rate cut is likely before the summer, potentially bringing the rate down to 2.0%.
Fund Performance
Kavaljer Investmentbolagsfond rose by 3.2% in January. In comparison, the Dow Jones World Index gained 2.9%. The fund’s top contributors during the month were LVMH, BHG, and Markel, each adding 0.5 percentage points to performance.
On the downside, the biggest detractors were Fairfax Financial (-0.1 percentage points), Danaher (-0.2 percentage points), and MedCap (-1.6 percentage points). We will provide further comments on MedCap’s weak performance later in this letter.
Changes and Holdings
During the month, the fund sold its holdings in Flat Capital and Johnson & Johnson. At the same time, it acquired shares in the serial acquirers Green Landscaping Group and Beijer Alma.
The fund’s equity allocation stood at 99%.
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Has interest in global index funds peaked?
Global equity funds have become increasingly popular among Swedish investors. The reason is simple: strong performance. The question is whether this trend can continue. To answer that, we need to understand where returns come from and whether their driving forces are sustainable.
The share of U.S. stocks in global index funds has steadily increased and now makes up approximately 75% of the MSCI World Index, up from historical levels around 65%. This dominance is primarily due to the strong performance of U.S. companies, particularly in the tech sector. At the same time, the U.S. dollar has strengthened by 23% against the Swedish krona over the past five years, further boosting returns.
Another key factor is the exceptional performance of the tech sector, particularly the so-called MAG7 companies (Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, and Tesla). The market's view of these companies is filled with optimism—often without healthy skepticism.
As Warren Buffett pointed out: “You can’t buy what’s popular and do well.” Howard Marks agrees: “Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge.”
This raises the question of whether global index funds are temporarily inflated—partly due to a historically strong dollar and partly due to the high valuations of the U.S. stock market, particularly driven by AI-related tech stocks. However, valuations tend to normalize over time. As the saying goes: “Nothing changes sentiment like price.” A correction in the valuation of highly priced U.S. tech stocks could trigger further declines.
We will see whether the launch of DeepSeek was the catalyst for a normalization of inflated AI valuations (Nvidia -20% since the launch less than two weeks ago). And who knows, perhaps Nordic companies with stable, predictable cash flows at low valuations might become popular again 😊
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Portfolio Update
MedCap Q4 Commentary – How Bad Is the Situation?
MedCap issued a profit warning ahead of Q4 as the year ended weaker than expected, with revenues of 474 MSEK (+4% y/y and 9% below estimates) and adjusted EBITA of 67 MSEK, corresponding to a margin of 14.1% (compared to 20.1% in Q4’23). Adjusted for one-off costs (which are rare for MedCap), adjusted EBITA was 77 MSEK.
MedTech and Assistive Tech maintained relatively stable sales but were pressured by mix effects and inventory write-downs. Management considers the full-year EBITA margins for MedTech (19.1%) and Assistive Tech (25.5%) to be representative going forward. The weakness came from Specialty Pharma, which continued to be weighed down by lower royalty sales of melatonin. MedCap previously had royalty sales (100% margin) in the UK with relatively low competition. When competition increased about a year ago, the company had to significantly lower its prices, which fully impacted operating profit (-11 MSEK in Q4). Royalties from the UK amounted to only 0.5 MSEK in Q4 and are now essentially gone. Q1’25 will also compare against a quarter with melatonin-related royalty sales of 5.9 MSEK.
The EBITA margin for Specialty Pharma was only 6.3% in Q4 but 9.3% for the full year. The segment is focusing on expanding its portfolio through additional licensing deals, partnerships, and acquisitions. A new licensing agreement was signed in Q4, and further opportunities are under evaluation and negotiation.
Our assessment is that MedCap has an underlying EBITA of 300 MSEK from its remaining operations (including the acquisition from 31/1) when removing melatonin royalties. With a current market capitalization of 6.0 billion SEK and a net cash position of 277 MSEK, this implies a valuation of just over 18x EBITA for a business with high-quality segments that continue to grow and no remaining sales with melatonin-like risks. Compared to the historical valuation of 24x EBITA, there is solid upside potential. We remain confident in the company and its management and continue to hold our shares.
MedCap represents 2.9% of Kavaljer Investmentbolagsfond.
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Svolder — Undervalued Holdings and High Discount to NAV
Svolder follows a strategy similar to Kavaljer Quality Focus, emphasizing a buy-and-hold approach for quality companies acquired at attractive prices. Beyond our appreciation for the company and its strategy, we believe that Svolder is particularly compelling at this moment—both due to a higher-than-historical discount to net asset value (NAV) and the fact that its underlying portfolio valuations have not kept pace with the recent broad market rally.
The portfolio primarily consists of small-cap companies within the Small Cap segment, which have underperformed the broader market and are trading at low earnings multiples. This contrasts with Mid Cap and larger companies, where valuations have risen over the past year. Meanwhile, Svolder’s own valuation appears attractive, currently trading at a 3% discount to NAV, compared to a five-year average where it has typically traded at a 6.5% premium.
Taken together, this presents a quality company with a portfolio of undervalued businesses, which itself is also trading at a discount relative to its historical valuation.
Svolder represents 5.7% of Kavaljer Investmentbolagsfond.
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New Holding: Beijer Alma – A Pure-Play Serial Acquirer with Strong Ownership and Attractive Valuation
Beijer Alma has evolved into a pure-play serial acquirer within niche industrial segments, operating with a decentralized management model, a long history, and a strong principal owner. The company follows a stable growth strategy, where both organic expansion and acquisitions play a key role. In the long run, annual growth is expected to be 8–12%, with 2–4% organic growth and 4–8% through acquisitions. A recovery in Lesjöfors’ margins could further boost profit growth.
Two Business Segments
Following the divestment of Habia Cable, Beijer Alma now consists of two industrial business units:
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Lesjöfors (≈2/3 of revenue): A leading global supplier of springs, wire, and strip components. Since 2019, the company has completed 11 acquisitions, driving 14% annual growth. However, profitability has gradually weakened, limiting EBIT growth to around 9% per year.
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Beijer Tech (≈1/3 of revenue): A group of specialized technology companies. 16 acquisitions since 2019 have contributed to 16% annual growth, while margins have strengthened. EBIT has grown 24% annually, demonstrating a scalable and profitable business model.
Habia Cable was divested in 2022 for 910 MSEK. The company produced specialty cables and was one of Beijer Alma’s oldest units. The sale was part of a strategic review to focus on more profitable and stable business areas.
Strong Ownership Structure & High Financial Stability
Beijer Alma has a strong, long-term principal owner in Anders Wall and his foundations, which control a majority of the votes. Johan Wall, son of Anders Wall, serves as Chairman of the Board, ensuring continuity in the company’s strategy. Additionally, Svolder has recently returned as an investor with an investment of approximately 200 MSEK. Financially, Beijer Alma is solid, with low leverage (Net Debt/EBITDA of 1.5x), providing room for further growth and acquisitions. Strong cash flow enables a balanced capital allocation between dividends, investments, and acquisitions.
Valuation: P/E 15 vs. Historical 20
If Beijer Alma continues to grow organically and through acquisitions, while benefiting from an improved macroeconomic outlook, it should be able to sustain a long-term profit margin of around 10%, in line with historical levels. The company currently trades at a P/E ratio of 15, while its historical average valuation is around P/E 20. Compared to similar industrial companies, Beijer Alma is valued at a discount, despite having a proven business model and strong cash flow generation.
Conclusion: A High-Quality Business at a Relatively Low Price
Beijer Alma is a pure-play serial acquirer with a decentralized and well-established strategy. Despite some margin pressure in Lesjöfors, Beijer Tech has demonstrated impressive growth and profitability improvements, strengthening the company’s long-term outlook. The Habia Cable divestment has further streamlined operations, creating a stronger foundation for stable profitability. With a solid ownership structure, low leverage, and an attractive valuation, Beijer Alma has significant upside potential—especially if Lesjöfors’ margins recover and acquisitions continue to generate strong results. In the long run, we see stable growth, high acquisition capacity, and a valuation with upside potential, making Beijer Alma an attractive investment for those seeking industrial stability and structural growth.
Q4 Results & CEO Transition
On February 3, Beijer Alma announced that CEO Henrik Perbeck will step down on April 1, after seven years in the role. During his tenure, the company’s share price lagged behind the index, but we believe Perbeck made several correct strategic moves, including the Habia Cable divestment and the transition toward a more stable and balanced business portfolio. While the CEO change naturally creates some uncertainty, we are not concerned about the company’s direction, given its strong ownership structure.
Alongside the CEO transition, preliminary Q4 figures were released:
Revenue grew 7.6%, an acceleration compared to +4.7% y/y for the full year. Adjusted operating margin improved to 12.1% (vs. 10.4% in Q4 last year), confirming that the company’s profitability initiatives are yielding results. Q4 was affected by one-time costs of 15 MSEK, leading to a slightly lower reported EBIT.
Beijer Alma represents 1.7% of Kavaljer Investmentbolagsfond.
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Kavaljer Investmenbolagsfond, compared to index |
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Performance
Performance since inception*) +146,2%
Performance 2024 +12,2%
Performance 2023 +13,22%
Performance 2022 -19,38%
Performance 2021 +37,98%
Performance 2020 +29,52%
Performance 2019 +36,12%
Performance Quarter -2,66%
Performance December -1,21%
Performance (NAV) 238,50
*) 14 May 2018
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Fund Information
Fund Type: SICAV (UCITS)
Name: LMM - Kavaljer Investmentbolagsfond
Custodian: CACEIS Investor Services Bank S.A.
Auditor: PricewaterhouseCoopers Société cooperative
Management Fee: 0,3% per year
Minimum Investment, SEK: 100
Subscription: Daily
ISIN: LU1777968246
Risk Level: 6 av 7
Category: Global & Sweden
AUM: 959 mkr
Morningstar Rating: ⭐️⭐️⭐️
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Nacka Strand, February 5, 2025
Peter Lindvall, Håkan Telander & Jesper von Koch |
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