Portfolio Manager comment Coeli Global Select March 2023

The performance of Coeli Global Select was 2.45% in March, beating the benchmark index by 1.89 percentage points. Returns for the first three months of the year have totaled 11.40%, which is 5.83 percentage points better than the benchmark.

The best-performing stocks during March were Adobe, AMD, and Sonova. The stocks with the weakest performance during the month were Société Générale, Titan Machinery, and Balder. Two of the best performers were tech-related stocks, and after a poor 2022, this sector has come back into favor this year. On the weaker side are two stocks with financial exposure – a sector that had a particularly tough March owing to turbulence in the banking sector that started in the US and spread to Europe.

Now, as we head into reporting season, we are looking forward to seeing what our companies have delivered during the first quarter of the year. One especially interesting company will be Beijer Ref, which has just taken in new capital in conjunction with its acquisition of Heritage Distribution. As active owners, it is particularly gratifying to be able to inject capital when our companies need it, and we believe Beijer Ref is facing an exciting future in which we anticipate both strong organic and acquired growth.

Key market events and trends (what has influenced performance most?)

In the middle of March, the Fed raised the Fed Funds target rate by 0.25 percentage points. Considering that the rate of inflation is easing, the Fed may now have reached the end of its interest rate hikes. During March, the US two- and 10-year rates have dropped quite a bit, which is the bond market’s way of showing that it also believes the Fed is done with or approaching the end of the hikes. Those of you who have read previous months’ newsletters know that interest rates influence share prices. Falling rates are now supporting valuations and share prices, which leaves us anticipating a good stock market this year.

During the month, there has been considerable unease in the European and US banking sectors that has even affected untroubled banks. Swiss bank Credit Suisse was taken over by UBS as its existing owners were unable to inject more capital. In the US, those facing difficulties included Silicon Valley Bank, Signature Bank, and First Republic Bank. We remain vigilant but not especially concerned that this will spread, as governments and financial authorities around the world have been working for a decade to strengthen the entire banking sector.

Portfolio changes

During March, we added a new Special Situations stock to our basket: Nordea. This is a more opportunistic, short position as, in our view, this unrest in the banking sector will ease relatively quickly. At the time of writing, we are up around 6% in this position and welcome the positive signals from the recent announcement by JP Morgan’s CEO that he believes this banking crisis is drawing to a close. It is often good business to buy when others are panic selling.

Another stock to join our portfolio as a Special Situations is Sweden’s Balder. We have had the benefit of listening to the company’s skilled CEO on several occasions and, at a net asset value of SEK 92 per share and a share price just over SEK 42 (as of 6 April), we saw good risk/reward in the share. Our position has not yet provided a positive return, but we have patience.

The fund’s positioning—our market expectations

We started the year with a stock portfolio of the World’s Finest Companies, including some of the strongest brands in the world, managed by teams providing good earnings and with low debt. It is encouraging to see the portfolio delivering according to plan and we are highly optimistic about this year.