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Market Insight 2011 Q1 Sweden

Swedish investors are broadly speaking confident about international investment markets. Although doubts remain over the eurozone, in particular the PIIGS countries, expectations for traditional asset classes are strong.

During 2010, equity, balanced and bond funds enjoyed inflows of nearly SEK107bn. The ongoing strength of the Swedish kronor has led investors to place assets in domestic equity products.

Bonds have remained an important part of everyone’s portfolios, but investors are keen to get higher yields again and so they are pushing up the risk scale. The outflows from money market funds highlights this trend.

Emerging markets are expected to deliver further returns, although the specific countries that are invested in may well change. It is also expected that more opportunities will be found in the hedge fund sector as long as regulation is shown to be clear and effective.

 

News Roundup
• HSBC has said that it expects the Swedish kronor to continue to strengthen against the euro.
This is on the back of the ongoing European debt problems combined with good financial prospects and tightening interest rates in Sweden.
• Sweden’s Minister of Finance Anders Borg has increased the GDP growth forecasts to 4% for 2011. The last quarter of 2010 saw annualised growth at 6%.
The government has also said that growth will increase even more in 2012 and predicts that unemployment will be less than 6% in 2014.

Hot Topics
What everyone is talking about
• EM still on the rise, but how long?
• How to access expected growth in the US?
• How far will the PIIGS crisis go?
• When will private equity and real estate opportunities return?
• What are the pros and cons of ETFs?

Key points of the four biggest interviews

Strategist, diversified financial services group
• Positive on US macro
• Euro will see some further challenges
• Positive on next effect for Swedish kronor
Partner, investment consultancy
• US and Euro bonds will continue to struggle
• UCITS IV will be positive, clients prefer transparency
Director, insurance company
• Emerging markets are still interesting, what about new frontier markets
• ETF may face distribution problems
Director, investment consultancy
• UCITS Hedge Funds are interesting, so far investors only use Swedish Hedge Funds
• Emerging markets equities following positive experiences in EMD

Asset Classes

Fixed Income
Steady returns are vital for institutional investors. Sovereign bonds in the eurozone have been out of favour due to the currency crisis with emerging market governments enjoying a profitable boost of trust from investors in Sweden.

The strength of the Swedish kronor meant that local government bonds were also of great interest to the local investors. However, interviewees have indicated more interest in higher yielding opportunities going forward.

Emerging Market Equities
These continue to do well, although investors are starting to look outside the mainstream EM markets for their EM hit.

US equities

Although US government bonds are still out of favour with investors, interviewees were positive about the outlook for US macroeconomic developments. The US market is notorious for bouncing back from crises and so most are expecting as a consequence the equity market will be benefitting, especially with low interest rates in the US, making the export sector especially attractive.

 

Strategies

UCITS
Regulated hedge funds remain of great interest to investors. Interviewees indicated that it is necessary to understand more about the vehicles and their structures. New regulation will help, but until then, Swedish investors feel more comfortable with domestic funds.

Multi-asset investing

The need for funds with a low-correlation to traditional assets is still pushing investors to multi-asset products.

 

Alternatives
Investors have told us that in addition to recovering markets, alternative investment strategies have grown in importance for their end clients. Apart from the hedge fund opportunities, this includes long-short strategies as well as absolute and target return vehicles.

Challenges
Swedish investors are sophisticated in their approach to find the best solution for their institution and/or end clients. The financial crisis has revealed that size and performance of international asset managers is not always linked.

Boutiques have become more interesting and in addition to delivering sought returns, investors have started to look even more carefully at internal operations within a fund manager.

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tom@ybc.tv

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