Exciting hedge fund opportunities

Engineering stocks have performed very well since the autumn, on hopes of accelerating earnings growth. The interim reports for the first quarter also look set to meet expectations, except for those companies unable to adjust their prices for cost inflation. However, much of this earnings growth is already factored in, and it is difficult to find stocks worth buying. One company that we have long held in the portfolio, and that we still like, is Volvo. It is benefitting from continued strong demand in Europe. We believe that both the US market and the business in construction equipment are bottoming out. Furthermore, we may see structural changes at Volvo. The share is attractively valued in both a historical perspective and compared to the sector. Its new management has also shown that the company is no longer quite as sensitive to economic cycles as it has been in the past. It is still cyclical, of course, but a larger proportion of service revenues and a proactive cost-focused management bode well even if demand were to slow down.

Catella Hedgefond also allows us to short stocks, which enables us to make money even if equities are falling. One share that we have shorted is Marine Harvest. It is the world's largest salmon producer, and has operations in places like Norway and Chile. Salmon prices are also cyclical since farmers tend to overinvest in good times. Salmon prices set new records at the end of last year due to a sharp reduction in supply following large algal blooms in Chile and disease in Norway during 2016. The algal blooms are behind us and, with record prices and less disease, we are once again heading for substantial growth in supply in the second half of 2017. Sea temperatures off the coast of Norway have also been higher than normal, resulting in faster growth. Producers in Chile and Norway are starting to bring disease under control, pushing the harvest weights back to normal. What we are seeing is a gradual return to normal conditions. Consumers have also become aware that the price of salmon in the shops is at a record level, and for a while it was almost as expensive as ribeye steak! Producers will be forced to cut prices to sell the large volumes ahead as consumers stop buying. The spring and summer, when the fish put on the most weight, will decide the magnitude of the price drops. The share looks cheap, but we should remember that these are record profit levels. At the bottom of the cycle, the companies could even lose money. However, it is too early to determine whether this is the end of the cycle, and the shares have already fallen 10-15 percent from their highs. To be continued...

Important information
Investments in fund units are associated with risk. Past performance is no guarantee of future returns. The money invested in a fund can increase and decrease in value and it is not certain that you will get back the full amount invested. No consideration is given to inflation. The Catella Balanserad, Catella Credit Opportunity and Catella Hedgefond funds are special funds under the Swedish Alternative Investment Fund Managers Act (SFS 2013:561) (AIFM). Catella Reavinstfond and Catella Småbolagsfond may use derivatives, and the value of the funds may vary significantly over time. The value of Catella Sverige Index may vary significantly over time. Catella Avkastningsfond may use derivatives and may have a larger proportion of the fund invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds, in accordance with Chapter 5, Article 8 of the Swedish Investment Funds Act (SFS 2004:46). Catella Nordic Long Short Equity and Catella Nordic Corporate Bond Flex may use derivatives and may have a greater proportion of the funds invested in bonds and other debt instruments issued by individual national and local authorities and within the EEA than other investment funds. For more details, complete prospectuses, key investor information, and annual and half-yearly reports, please refer to our website at catella.se/fonder or phone +46 8 614 25 00.