Monthly Newsletter Coeli Absolute European Equity – August 2022

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Monthly Newsletter Coeli Absolute European Equity – August 2022

AUGUST PERFORMANCE

The fund’s value decreased by 5.5% in August (share class I SEK). The Stoxx600 (broad European index) decreased during the same period by 5.3% and HedgeNordic’s NHX Equities declined provisionally by 1%. The corresponding figures for 2022 are a decrease of 26.1% for the fund, -14.9% for the Stoxx600 and -5% for NHX Equities.  

EQUITY MARKETS / MACRO ENVIRONMENT

The beginning of August was an extension of July's optimism and the world's stock markets continued to climb. After a week or so the momentum of the rally started to wane and in a market with little liquidity (most of Europe was on holiday) it didn't take much selling volume to move share prices down. US Speaker, Nancy Pelosi's, visit to Taiwan unnerved investors (and China) and as energy prices continued to soar, risk appetite was dampened further. When US Federal Reserve Chairman, Jerome Powell, on Friday 26th of August was more hawkish compared to a month ago, we had the worst daily performance on the US stock markets since the beginning of June (Nasdaq -3.9%).

The broad European index fell by 5.3% in August compared to the fund's value, which fell by 5.5%. As an asset class, small caps were worst in class, e.g., the SEB Small Companies Index fell by 9%. The broad Swedish index fell by 7.1%. In such an environment, the Swedish krona is usually under pressure. This time was no exception and the Swedish krona fell in August by 3.2 and 4.7% against the euro and the US dollar respectively. The UK currency, which is the western country most severely affected by strong inflation (expected to rise to 20% in 2023e), also fell by 3% against the euro. The fund's exposure to these two currencies is roughly 45%, with the largest exposure to GBP. Taken together and in isolation, it led to a negative profit contribution in August of just under 1.5%. We want to believe (wishful thinking?) that it will be reversed in the future. The big talk of the month was rightly the skyrocketing energy prices in Sweden and in large parts of Europe. Slightly dizzy politicians began mixing ignorance, lies and facts in front of their voters in an increasingly hysterical election debate. There is no doubt that large amounts of support are needed to literally get people and businesses in southern Sweden to survive. The Social Democrats' initial proposal of 30 billion in support for consumers and the same amount for companies is a lot of money, but unfortunately only a drop in the ocean to cover the greatly increased costs (there has now been a new proposal of 45 plus 45 billion). If you assume that out of just over two million villa households, 1.5 million are in price range 3 and 4 and each villa consumes 25,000 Kwh per year, then it becomes 37 billion Kwh. Then it is enough to reduce the electricity cost by just over a krona per Kwh. After tax and VAT, it looks like a private person has another SEK 7-8 left to pay. The state takes 15% of the price shock and the consumer in southern Sweden the remaining 85%, and much of it is pure tax. The price difference compared to northern Sweden today, when this is being written, is about 20x. Electricity-intensive companies in southern Sweden do not have a chance to compete with companies in northern Sweden. Absolutely horrible and within a few weeks the risk of layoffs will pour in due to the cost explosion. It's going to be a long and cold winter.   Source: Steget efter The difference between strategic thinking and naive energy policy becomes clear when you read in Helsingin Sanomat that Finland's new nuclear power plant, which cost the owner approximately 5.5 billion euros, has a payback period of three years and seven months with today's conditions. Even if it were a few years longer, it's a brilliant investment. Feels like a better capital allocation than sending away 50-100 billion to people and companies just to be able to survive the winter months and keep your fingers crossed that it’s windy. Below German energy prices which also had an explosive development. It will affect the country's GDP significantly and if the country is not to end up in a deeper recession, the state must take a large part of the increased costs. It is very difficult to understand that even after Russia's entry into Crimea in 2014, they continued to build critical infrastructure together with Putin. The pressure on people and companies in Germany increases with each passing week and we hear more often comments that the price of helping Ukraine is too high. European solidarity is being tested and the fact that Putin on Friday evening, September 2nd completely shut off the gas tap to Europe does not make matters better. Source: Bloomberg, Holger Zschaepitz Part of the explanation for the violent price rise is the targets that Germany has set for winter stock. They are at least two weeks ahead of their plan when the gas stocks were already up to 75% a few weeks ago. By October 1^st, at the latest, they must reach 85% (they will soon be there) and by November 1^st, 95%. They have aggressively purchased gas from other countries and paid little attention to the price. The EU goal of reducing consumption by 15% also seems to be achieved. The latest assessment by Goldman Sachs says that if Russia does not turn the gas back on or there is a cold winter, Germany will be without gas in the first half of 2023. With normal weather and 20% flows from Russia, they will manage, but possibly have problems next winter. In winter 2025, significantly more capacity will come in and the situation will therefore be significantly better for Europe. When the President of the European Commission, Ursula von der Leyen, announced a few days ago that the EU will come up with a crisis measure and some kind of price ceiling, gas prices fell by almost at most 50% in a few days. Who decides the price of electricity in Europe? Are we all in the hands of speculators? Say what you want about Europe, but you have experience with crisis packages. Below are the gas stocks of various European countries. Sweden is in principle completely independent of gas. Below is the purchasing index for the Eurozone, combined with earnings per share for European companies. Consensus expectations for profit growth in Europe are currently 17.7% and 2.7% respectively for 2022-2023e, which feels optimistic. The covariation has currently been broken (circled in red on the right), which supports our thesis that the estimates are generally too high. Source: JPM Although inflation is more persistent and broader than most of us thought a few months ago, there are an increasing number of good signs. Here, too, the USA is ahead of Europe in development. Below are shipping rates that keep falling. Source: Kepler Chevreux If the oil price remains around USD 90 per barrel (black, left), the YOY contribution to inflation will go from plus 60% to minus 20% (orange, right). Energy is about a third of US core inflation. At the time of writing, the price of oil is only a few percent higher than it was before Russia invaded Ukraine. The definition of Putin prizes is becoming difficult to discern. Source: Kepler Cheuvreux In addition, more and more companies are reporting a positive development in terms of various bottleneck problems, which will also contribute to a certain dampening of price levels. The image below illustrates this well. Source: Kepler Cheuvreux What currently affects market sentiment by far is the aftermath of the US Federal Reserve Chairman's speech on August 26th in Jackson Hole. The speech lasted eight minutes and when finished, we had the biggest drop in the stock market in months and not since 2010 has a Jackson Hole speech received such a negative reaction in the market. The Fed will continue raising interest rates as long as necessary to get down to two percent inflation ("will keep at it until we are confident the job is done"). He also said that the development to tame inflation "falls far short of what the Committee will need to see before we are confident that inflation is moving down". The speech led to sharply rising interest rates, and below is shown how the market has forecast the key interest rate for the past two months. It is very unusual for the differences to be so large in such a short period of time, which is a large part of the explanation for the slightly neurotic development of the stock market during the same period of time. Source: Kepler CheuvreuxSource: Economist We live in unusual times in many ways. Below is the force of tightening by the world's central banks over the past 40 years - strongest ever. A snapshot of the valuation of a number of different stock markets around the world. The multiple contraction has been compressed by approximately 20-50%. As we mentioned earlier, the problem going forward is not the valuation but how much the companies' earnings should decrease. The cash levels of the world's stock managers are, from a historical perspective, still high, see image below.

A company that has a large cash register is Apple. This despite the fact that in the last 10 years shares have been bought back for SEK 5,500 billion, which is more than the total market value of 494 out of 500 companies included in the S&P500. Impressive to say the least.

Long positionsSampo Since the beginning of the year, we have had a position in Finnish Sampo. After the sale of the company's Nordea holdings, Sampo now consists of some of the world's finest insurance assets. The Q2 report in August was impressive. The main asset, insurance company “If”, impressed the most with strong profit growth. The Sampo holding has been one of the fund's better ones this year. (That's not particularly surprising since it can still be described as a defensive holding.) The stock rose by 7% in August. London Stock Exchange Another defensive holding that delivered in August was the London Stock Exchange. Just like Sampo, we took on the share at the beginning of the year. The stock market has long been skeptical of the company after it completed a gigantic acquisition. The market saw integration difficulties and a risk that the costs related to the acquisition would be worse than communicated. However, after several reports, the management has proved the skeptics wrong, and the share had risen 16% in 2022 as of the end of August. During the month, the share rose by around 1%. Musti We continue to follow the "pet market" closely and made a short visit to Finnish Musti in August. Before the Q2 results, we thought the market was very gloomy. The number of newly registered dogs in at least Sweden continues to be higher than before the pandemic, although the levels are lower than the record year 2021. We also noted insider buying among the management team and thought analysts' expectations were low. Combined with a valuation that looked more appetizing than in a long time, we bought shares around EUR 17. After the report, the share price rose rapidly, and our investment thesis was fulfilled in a few weeks (definitely faster than expected). We have therefore liquidated the position and are looking further at other opportunities in the sector. 4imprint For some time now, we have been buying shares in London-listed 4imprint. Really, it's only the share price that has anything to do with the UK, as basically all the business is based in the US. 4imprint is a distributor of "give aways", typically products that are used for marketing purposes, for example at conferences and events. After a couple of very tough pandemic years, 4imprint has come back strong in 2022. In a normal world, 4imprint has a return on capital employed of more than 80%. At the same time, sales grow by more than 10% per year (pandemic years excluded). Every year the company takes market shares that they can use to create economies of scale: with its size, the company can negotiate down its supplier costs, which they can in turn use to lower the price to customers and thus take even more market shares. After several positive report surprises, the share has risen around 27% this year. Despite this, we think the valuation is low. If we are correct in our estimates, the share will trade at a valuation of approximately EV/EBIT 12x 2022e, which is clearly lower than historical levels. The 4imprint share rose by 19% in August. ISS At the beginning of the month, ISS came out with yet another update that added flavor to the market. The organic growth was strong, and the operating result was somewhat better than the market's expectations. The outlook for the full year was raised and the company is now forecasting sales for 2022 to grow by more than five percent. We like free cash flow to continue to improve and debt to decrease. A large part of the investment thesis is about investors regaining confidence in the company, which underperformed for several years under its previous management. As ISS continues to deliver on its goals, more people should gradually become more positive about the company. ISS shares rose 3% in August and have risen 4% in 2022. Short positions

The short portfolio contributed to a positive result during the month. The biggest positive contribution was made by our short positions in a Swedish small company index and in the German DAX. A couple of stock-specific short positions that contributed positively to the result were Finnish Qt Group and Swedish Mips.

Exposure The net exposure, adjusted for our unlisted holdings, at the beginning and end of the month was 52%. Summary Since the outbreak of Covid-19 2.5 years ago, we have experienced the fastest 30% decline on record, the shortest recession on record, the most aggressive monetary and fiscal policy response on record, the fastest/strongest stock market recovery on record, the highest inflation in decades, the sharpest tightening by the US central bank in at least a generation and the worst first half for stocks in 50 years. In addition, we have had a war in Europe. At least these are not uninteresting times in which we live. The reporting season for the fund was, with a few exceptions, good for the fund and our companies. As for our large positions, it passed with flying colours. We have limited knowledge of how the shares develop in the short term after the quarterly reports, but if the reports correspond to or are better than our expectations, we know that our analysis process is working and then the probability also increases significantly that our long-term investment theses will be fulfilled over time. Despite a strong reporting season, the net development for the fund during July and August was relatively unchanged, which is of course frustrating. Two clear movements affected us negatively in August. The first is the asset class small caps, which again (see June) had a very weak development and even though we have reduced our exposure to these types of companies a lot throughout the year, we are still exposed. Below is a shorter time series and with Europe included. You can clearly see the last month's weak development in Europe. The picture below confirms what we just said. Investors are looking for liquidity and then the capital is allocated to the larger companies, and this also applies to our fund. We have significantly larger companies in the portfolio today compared to a year ago. The other external factor that negatively affected our returns in August was the currency movements mentioned in the introduction of the letter. The negative profit contribution for August was just under 1.5%. That there is no more discussion about the chronically weak Swedish krona is strange to us. Either the politicians do not understand the seriousness (quite possible), or they are busy putting out fires elsewhere. Below is the development against the US dollar since November last year, which quickly and unpleasantly became 27% more expensive. If nothing else, the weak Swedish krona is excellent fuel for the inflation fire. For Swedes who save and have parts of their capital in a typical global index fund, this is positive. 60% of the world's shares are denominated in USD. Since November, you have received a 17-18% return just from a strong USD (or a weak SEK, however you choose to look at it). These are huge numbers. And finally, the CHF passed SEK 11 in August. 50 years ago it was 1 krona. Source: Bloomberg All of our large holdings are companies that have good conditions to continue to have a certain level of growth under tough circumstances, that have stable or in best cases rising gross margins and where the balance sheet is strong. In addition, the valuation is attractive by our standards. It is no surprise that the consumer is in record depression right now and it looks more or less the same in Europe. Below the mood of German consumers and they are currently significantly more depressed than during the Covid crash. Realistically, one can hope that the curve will turn upwards as early as in the spring, but as always, the stock market is ahead of reality. Source: Bloomberg Below is the development of real wages over the past 25 years. A brutal awakening this year with sharply falling real wages. Below is an interesting analysis from Goldman Sachs where HAC stands for "Household Available Cash Flow". The lowest point will be in Q1 next year and then we'll go up again. It sounds reasonable with an expected slowing inflation and later in 2023 falling interest rates. There is hope! Source: Goldman Sachs In conclusion, we continue to hold to our view of a range bound market and we note that we now again look set to test the lows from June. We also maintain our view that the US Federal Reserve's announcement at the end of September will likely determine how the year ends. Undoubtedly, the positioning in the market is cautious and investors are sitting on a lot of cash. Below, long minus short positions on the S&P500 and aggregated are at historically very low levels. Last chart of the week from Berenberg. In recent years, it has been a reliable buy signal when we have been at these levels. September is traditionally a weak month and there is currently low liquidity in the market. On the other hand, we have had a significantly weaker end to August than we usually have. In the second half of August, for example, SXXP600 had a negative return of just over 6%. The S&P500 has this year had its fourth worst performance ever YTD. For those interested in statistics and history, returns from here have been positive for 7 of the 8 historically worst years to date. 1974 is the only year with a negative return from here and it was -5%. In conclusion, the fact that Putin cut off the gas to Europe on Friday, September 2nd is hardly something that helps, although we think few are surprised. With no flows coming from Russia, we would like to think this is the end of negative news. In the slightly longer term, Europe will win and overtake Russia, which is putting itself 50-100 years behind in economic development. The last few weeks have been weak, and it is tight on the downside. That should mean we're in for a pullback soon, but as I said, we live in unusual times. The next big data point is inflation data from the US which is announced in about two weeks. We are grateful for your continued trust and patience and are working hard to have a good end to the year.   Mikael & Team Malmö on 6th of September 2022 [/et_pb_text][et_pb_post_title _builder_version="3.0.89" title="on" meta="off" author="off" date="off" categories="off" comments="off" featured_image="off" featured_placement="below" text_color="dark" text_background="off" border_style="solid" module_class="gen-single-news-heading-module gen-trustee-single-headline" date_format="d M, Y" border_style_all="solid" disabled_on="on|on|on" disabled="on" /][et_pb_text admin_label="Coeli Nordic Corporate Bond Fund R-SEK" _builder_version="3.0.89" background_layout="light" module_class="gen-table-module" disabled_on="on|on|on" disabled="on"]

Coeli Nordic Corporate Bond Fund

Performance in Share Class Currency	1 Mth	YTD	3 yrs	Since incep
Coeli Nordic Corporate Bond Fund - R SEK	1.30%	-0.93%	3.38%	14.52%

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Gustav Fransson

Portfolio Manager of Coeli Nordic Corporate Bond Fund [/et_pb_text][et_pb_image _builder_version="3.0.89" src="https://coeli.com/wp-content/uploads/2018/10/Alexander-Larsson-Vahlman.jpg" show_in_lightbox="off" url_new_window="off" use_overlay="off" always_center_on_mobile="on" force_fullwidth="off" show_bottom_space="on" custom_margin="||21px|" disabled_on="on|on|on" disabled="on" /][et_pb_text admin_label="Namn och title" _builder_version="3.0.89" background_layout="light" module_class="gen-single-ingress-module" custom_margin="||40px|" disabled_on="on|on|on" disabled="on"]

Alexander Wahlman

Senior Analyst [/et_pb_text][et_pb_text admin_label="Top Holdings (%)" _builder_version="3.0.89" background_layout="light" custom_margin="||20px|" module_class="gen-trustee-single-table" disabled_on="on|on|on" disabled="on"]

Top Holdings (%)

LANSBK 1.25% 18-17.09.25	4.1%
NORDEA HYP 1.0% 19-17.09.25	4.1%
SWEDBK 1.0% 19-18.06.25	4.1%
WHITE MOUNT FRN 17-22.09.47	3.9%
B2 HOLDING FRN 19-28.05.24	2.9%

  [/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row _builder_version="3.0.89" background_position="top_left" background_repeat="repeat" background_size="initial" module_class="gen-single-news-content-row gen-trustee-single-content-row" custom_padding="0px|||" custom_padding_phone="23px|||" custom_padding_last_edited="on|tablet" module_class_2="gen-trustee-single-sidebar" disabled_on="on|on|on" disabled="on"][et_pb_column type="2_3"][et_pb_text admin_label="Tillbaka-knapp" _builder_version="3.0.89" background_layout="light" border_style="solid" custom_margin_tablet="||17px|" custom_margin_last_edited="on|desktop" module_class="gen-back-button hide-in-print" border_style_all="solid"] Note that the information below describes the share class (I SEK), which is a share class reserved for institutional investors. Investments in other share classes generally have other conditions regarding, among other things, fees, which affects the share class' return. The information below regarding returns therefore differs from the returns in other share classes. Return to Fund page [/et_pb_text][et_pb_text admin_label="Datum / Skriv ut" _builder_version="3.0.89" background_layout="light" border_style="solid" custom_margin_tablet="||17px|" custom_margin_last_edited="on|desktop" module_class="gen-single-news-date-module gen-trustee-print-module hide-in-print" locked="on" border_style_all="solid"] [blog_post_date]

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Utveckling september

Fondens värde sjönk -5,1 procent i september (andelsklass I SEK). Stoxx600 (brett Europaindex) sjönk under samma period med -3,4 procent och HedgeNordics NHX Equities var preliminärt oförändrat. Motsvarande siffror för 2021 är en ökning om +21,6 procent för fonden, +14,0 procent för Stoxx600 och +6,4 procent för NHX Equities.  

Equity markets / Macro environment

After seven consecutive months of positive performance the world’s stock markets were poised for some degree of turbulence. Volatility was especially high in some equities and on Monday, September 20, the highest nominal volume ever traded was reached in options on the S&P500 (!) The broad European index fell by 3.4 percent in September compared to the S&P500 which fell by 4.8 percent. The fund also had its first negative performance since October last year with a decline of 5,1 percent. More about that later. Despite high levels for many stock indices, sentiment among investors has been relatively gloomy. Bank of America's monthly survey recently showed that only 13 percent of managers expect a positive market in the future, which is the lowest figure since April 2020 (and that was clearly wrong). The reasons cited are China's growth problems, the crisis-stricken Chinese real estate giant Evergrande, the development of the delta variant, declining profit growth and, of course, rising inflation. However, they are still overweight equities which is perhaps not so strange when you have to pay to lend your capital to countries. As interest rates rose at the end of the month, the German 10-year interest rate followed with a giant step from - 0.25 percent to - 0.17 percent… The picture below is an overall risk indicator, and we are around zero (neutral). The news flow in September began with record high inflation figures in Europe at +3.0 which exceeded market expectations. The corresponding figure in July was + 2.2 percent. It was the fastest growth rate since November 2011 and several countries recorded up to five percent in inflation rate. The pressure on the ECB to reduce its support measures is increasing. On Friday, October 1, new inflation figures came in for September, which showed a further acceleration in the inflation rate by +3.4 per cent. The rate of change can be mostly attributed to rising energy prices that are starting to create real problems in the world's economies as well as agricultural shifts. The picture below shows that food prices are at record high levels over the past 60 years. The biggest losers are the poorest part of the population. In the slightly longer term it is forecasted that it is not excessive demand that will drive inflation, but rather a limited supply, and then both in terms of products and labour. At the end of September, long queues were reported at petrol stations across the UK when fuel ran out and there were not enough truck drivers to refuel. Prime Minister Boris Johnson urges his citizens to refuel sensibly and at a normal rate. You wanted Brexit, so there you go. In sheer desperation, Johnson has now issued 5,000 temporary short-term visas for temporary drivers. Good luck. M25 spring 2022? Below are European gas prices which have risen in a seemingly uncontrolled fashion and recorded the highest September prices ever. A silent prayer for the mild winter. We guess that this development will soon be a major topic in the media, and it will undoubtedly create various problems and somewhat reduce next year's expected growth. It feels reassuring that Per Bolund (Swedish Green Party MP) claims that there is no electricity shortage in Sweden because then the costs for ordinary people would be unbearably high during the winter (which of course they will be). Rising gas and electricity prices have led European politicians to start discussing billion-dollar subsidies (in euros) to households and manufacturers who will experience sharply rising electricity bills over the winter. Source: Bloomberg Henrik Svensson, site manager at the oil-fired power plant in Karlshamn (south Sweden), does not agree with Per Bolund that we have a surplus of electricity in the country. For large parts of September, the power plant ran at full capacity and burned 240k liters of oil per hour. Henrik Svensson believes that it is electricity shortages and high electricity prices that are behind the high production. He also says that there is a lack of planned power production in southern Sweden and that it will take many years before the electricity grid is strengthened and new electricity production is in place. Sweden today burns more oil than we have done in 10 years. A gigantic energy policy and climate policy failure signed by the Green Party. Source: Steget efter Winning candidate for this year's Christmas presents below. The change in the US 10-year interest rate created considerable pressure on, primarily, growth stocks at the end of the month. The performance dispersion for different sectors was very large in September with oil shares as a clear winner. This was also felt in the last days of September. Source: Bloomberg Below is the development for the US 10-year interest rate. The turbulence in the stock market was caused by the change in interest rate level breaking through on the upside, as can be seen in the chart. There have been countless attempts to explain the turbulence in recent weeks. The recent and significant amount of options being exercised, Evergrande, interventions by the Chinese government, Fed tapering, Bank of England expected to raise interest rates, delta variant, inflation, bottlenecks in production, difficulties in finding staff, rising energy prices and declining growth rates. We think it is enough to look at the picture below. Rising interest rates hit hard at growth companies' valuations. Goodbye Mutti and thank you for an extraordinary effort for Europe! Source: Nyhetsbyrån TT She was politically in a class of her own during the euro crisis ten years ago and Sweden also has her to thank for a lot. Despite a somewhat weaker performance in recent years, German citizens have experienced significantly better economic development than many others. On September 29, the covid-19 restrictions in Sweden were finally removed and we can now, in principle, start living a normal life again. The number of bookings for winter holidays skyrocketed to the great joy of the tourist and transport industry. In recent months, tourism activity in the Mediterranean has been "extraordinary" and much better than forecasted before the summer. Luxury travel is also reaching new heights. Private jet passengers to Mallorca increased by +70 percent in July compared to July 2019 with an average of 83 private jets per day landing in Palma. If you want to rent a yacht, you are being referred to next year as basically everything has already been fully booked. We now belong to a minority group. Passively managed capital exceeds actively managed capital for the first time ever. This will give us more opportunities as mispricing increases. In addition to being one of the world's best stock markets this year, Sweden also has the most listed companies in the entire EU. Bloomberg drew attention to the fact that there are now around 1,000 listed companies on the various trading platforms in Stockholm. More than 80 percent are smaller companies, and the list is filled with new listings every day until Christmas! For us, it is interesting as we are constantly looking for new potential core holdings. In recent weeks, we have identified one which we write about under Long Positions. We end this section with a picture that well reflects today's political level. Source: Kluddniklas

Long positions

Truecaller During September, we did a lot of work on the Swedish company Truecaller which will go public on October 8th. Truecaller is one of the most interesting companies we’ve seen in recent years. Truecaller has developed a phone application that can, among other things, identify unwanted calls from, for example, telemarketers. The app is one of the top ten most downloaded applications globally, and in some of the main markets such as India, Nigeria and Indonesia, it is one of the three most downloaded apps. As a Swedish company with headquarters in Stockholm, the firm has chosen to list on the Swedish stock exchange, which we are very happy about. Truecaller was founded in 2009 by Alan Mamedi and Nami Zarringhalam. They met at the Royal Technical University in Stockholm, and they continue to be active in the company as the CEO and Chief Strategic Officer (CSO), respectively. When they released the first version of the app, they received 10,000 downloads within one week. By 2013 they had reached over 10 million users globally and in Q2 2021 they had reached 278 million monthly users. Throughout their journey, Truecaller has attracted several well-known investors such as Sequoia Capital (early investors in Apple, Whatsapp, and Zoom among others), Atomica (Skype-founder Niklas Zennström’s investment company), and Kleiner Perkins (early investors in Google, Amazon, and Spotify among others). Until recently, revenue streams have mainly consisted of income from in-app advertising. In addition to this, there is a premium version where paying users can get additional functionalities. That business accounted for around 20 percent of revenues in 2020. During the fall of 2020, Truecaller launched a corresponding offering that targets corporates.  This part of the business allows B2B customers to be listed as verified callers when they call private people. It can for example be a security company that calls about an alarm or a courier company that needs to get in contact with a receiving customer. It is a common problem that these types of companies get rejected when the call-receiver doesn’t recognize the number. Truecaller declares that their product benefits from network effects. i.e., the product gets better the more people who use it (think Facebook). This can be relatively easy to appreciate since phone number identification inherently evolves from reporting of unwanted calls by the users, i.e., when enough people have reported an unwanted call Truecaller flags for this in the app). Over time, Truecaller has built a database containing 5.7 billion unique phone-identities. Network effects doesn’t just build a better product over time, they also increase the entry-barriers for potential competition. The majority of Truecaller’s income comes from developing countries. The company explains that the problems related to spam emails, harassment, unwanted calls, and messages are more common there than in the western world. India is Truecaller’s largest market where these types of problems are significant. One positive aspect of the geographical exposure is that it allows for a nice structural tailwind: the population growth in developed markets is much higher than in the west (driven by an increasing average age) and the smartphone penetration is growing fast. Historically, 97 percent of all app downloads have been organic. However, management has begun to experiment with user acquisitions by the way of advertisements through, for example, Facebook. The returns on user acquisition looks extremely attractive. In some markets, such as India, Truecaller could achieve a return on investment of up to 20x on every spent dollar. In more mature markets, such as the USA, the same multiple amounts to 4x, still very attractive. Indonesia, which is a relatively new market to the company, has a multiple of 0.8x. This means any user acquisition spend in Indonesia is unprofitable at this point. However, management is confident that the return profile will wander above the 1x as more users join and the network effects take place. In summary, the investment opportunities are plentiful and attractive – and unique. In summary, several things speak for significant growth in the future. The investment in paid user acquisition, a sharpened premium-offer, the newly launched B2B product and continued growth of the advertising business. In addition to this, acquisitions may likely follow. Growth has been prioritized over profitability and it is only recently that the company began to report profits. In 2019 sales grew by 57 percent. In 2020 the corresponding figure was 64 percent, and during the first half of 2021 the company’s sales grew with as much as 151 percent in comparison to the same period last year (which was partly affected by the pandemic). During the first half of this year, the company’s operating margin was 32 percent. As you can imagine, Truecaller is very capital-efficient. Working capital is very low which gives a nice cash conversion and a very high return on capital employed – all attributes that are required to create a very successful and valuable company over time. Truecaller targets a revenue growth of at least 45 percent between 2021-2024e. After 2024 the EBITDA-margin should be at least 35 percent. The sum of the year-on-year growth and the EBITDA-margin should amount to at least 70 percent (a variant of the rule of 40 that tries to balance growth and profitability). We don’t think it will be difficult to reach these targets and the analyst estimates we have looked at are cautious, especially regarding profitability. In our preliminary prognosis for 2023, our EBITDA-estimate is around 16 percent ahead of the analyst estimates that we’ve studied. This is based on that Truecaller can continue to grow sales much faster than hiring new people while the gross margin improves slightly in coming years. The gross margin is an interesting aspect of the equity story. Truecaller’s gross margin amounts to approximately 70 percent. Most of the cost of sales consists of platform fees to Apple and Google. Since Apple and Google practically control the distribution channels for apps together, a duopoly has occurred and prices for app-developers such as Truecaller have remained high around 25-30 percent of sales. This situation is now heavily criticized from all parts of the world since the situation is not considered competitive, for example look at this analysis about an American court ruling concerning a twist between Epic Games and Apple. We believe Google and Apple’s fees will decrease over time – which would be a positive event for Truecaller. Furthermore, Truecaller’s new business deal bypasses Goggle and Apple, which gives a gross margin of close to 100 percent. This will strengthen the profitability even more. There are of course risks associated with the dependence on Google/Apple (which is the case for every company in the application business); the geographical exposure and one should never write off the threat of competition even if it seems far away at this stage. However, we do believe the benefits outweighs the negatives. Truecaller has excellent financial characteristics, operational founders with large shareholdings who will remain active in the business and some of the world’s most well-known investors behind it. We therefore look forward to being included as an anchor investor ahead of the stock exchange listing on October 8th. We are even more excited to follow the company’s successes in current and new markets in the coming years. CVS Group One of the happiest days of the month was when our veterinarian company CVS Group released their interim numbers. Once again, the company beat analysts’ expectations which have been raised several times over the course of the year. In the first two months of the new financial year (which begins in July), the company has grown by 17 percent. This can be compared with the growth expectations for the full year which, before the report release, were 7 percent. Once again, analysts have thus far been “forced” to upgrade their assumptions. In a sour September stock market, the share fell 3 percent. It becomes clear that the positive effect of the pandemic on pet ownership is more tenacious than ever. Pets live for many years, and we believe many underestimated the importance of the large number of new customers during the pandemic. Below is a graph of Google searches for veterinarians in the UK as well as data from the Swedish Board of Agriculture regarding the number of newly registered dogs. We speculate that the UK has similar trends as Sweden. The data points are also positive for our other pet company Swedencare. Pet companies are obviously still hot; right now there’s a bidding war going on over the German pet company Zooplus, where EQT is currently in the lead with the highest bid. We also note that there have been several venture capital-led acquisitions of veterinary companies at higher multiples than CVS is valued at. Source: Jordbruksverket, Coeli Source: Google Trends, Coeli Lindab Since our first investments in Lindab in the autumn of 2019, the thesis has always been that the building systems business segment did not fit into the business and in September, management finally found a buyer for the company. The transaction entails a write-down of goodwill corresponding to SEK 430 million, but it is cash flow neutral. Lindab took the opportunity to update its financial targets; the company now wants to grow by 10 percent per year (of which approximately two thirds are through acquisitions) and reach an operating margin of at least 10 percent (previously 10 percent over a business cycle). The share responded positively to the message. We noted broad insider purchases in Lindab during the month, also from CEO Ola Ringdahl himself, which we think bodes well for the report in October. Despite this the share price decreased 8 percent in September. Victoria We have written several times about the British flooring company Victoria, which in September had a weak share price development of 17 percent. By all accounts, the company is doing well – during the month it was reported that sales rose 70 percent compared to 2020, and 50 percent compared to 2019. If you only partially extrapolate these figures for the rest of the year, it is obvious that analysts’ expectations are too low. We believe that this month’s decline is related to flows: growth companies and small and mid-cap companies were some of the most affected sectors in September – Victoria was hit from both sides. We have increased our position in recent days. The Pebble Group One of the month’s (few) joys was Pebble Group. As we previously wrote, the company is active in the market for gift advertising, i.e. gifts that companies give to customers, employees, and other stakeholders for marketing purposes. In September the company came out with its half-year figures that were better than expected. Pebble’s software division, Facilisgroup, is growing better than our expectations. This is also the part we believe the market is valuing too low. The stock rose 10 percent in September. Knaus Tabbert During the last trading day in September, our German motorhome manufacturer Knaus Tabbert announced that the forecasts for 2021 must be lowered due to component shortages. We are not particularly surprised that this has happened given what we have seen from other vehicle manufacturers. If the company can remedy these supplier problems, management believes that 2022 will be unaffected at best, as Knaus still has a bursting order book, increased production capacity and more suppliers from January next year. The share fell 7 percent in September.

Short positions

The short portfolio contributed with a negative result during the month. Our short-term negative positions in the German DAX had the largest negative contribution. Some stock specific short positions that contributed positively to the result were Swedish Dometic, German Henkel and Norwegian NEL.

Exposure

The net exposure, adjusted for our unlisted holdings, at the beginning and end of the month was 76 and 74 percent, respectively.

Summary

September's negative return of x percent also meant the end of the fund's, so far, longest period of positive return (10 months). We are obviously disappointed with that, but we have been in the game long enough to understand that equities sometimes must fall to be able to refuel and continue their upward trajectory. In general, September was the weakest month for many equities since the crisis started 1.5 years ago. September, otherwise, started strong for us and was a continuation of an unusually good performance at the end of August. Our companies presented many good news (except for Knaus Tabbert on the last day of the month) but small-caps and especially those categorized as growth shares, had a very weak performance during September. The main reason for this was, as previously mentioned, the change in the US long-term interest rate and general "risk off". The picture below shows the development since March last year compared with the corresponding time intervals in the financial crisis in 2009 and onwards. Both periods have shown an unusually strong recovery and the current trend is even stronger than when the financial crisis raged 12 years ago. Source: Goldman Sachs Since the crisis started 1.5 years ago, we have had three different phases. The first and shortest, "despair", showed a decline in prices of 33 percent. The second phase, "hope", ended at the beginning of this year and showed a very strong return of 79 percent despite declining earnings. The last, “growth”, where we are now, has shown +11 percent in share prices with sharply rising growth for companies' earnings, but at lower valuations. Source: Goldman Sachs The recovery for American companies (below) has been extremely strong and compared to 2019, the 2021 profits will be approximately 36 percent higher. Very impressive. Source: Goldman Sachs It is very gratifying that Europe, for once, is keeping up with the United States and showing strong profit growth. Compare this with the non-existent profit growth between 2007–2019 (!) Despite rising equity prices, valuations have fallen and Europe is now trading around 16x the profit 12 months ahead. It's not very strenuous (we think). For an average commercial property, you can get a return of maybe 3 percent before net financial costs. After financing, this corresponds to at least P/E 50x. And paying to lend to different countries does not feel like an exciting alternative either. Source: Goldman Sachs The valuation of global shares in relation to global GDP looks more strained. A major reason for this is the central banks' aggressive policy. The valuation of the major leading technology companies is at an average level seen from the last five years. Source: Goldman Sachs The image below is striking. It shows that Swedish property prices, which have risen by almost 200 percent over the past 15 years, have had the same development as the money supply. In theory, price per m2 and krona is unchanged for the past 15 years. Is there anyone who still doubts that the world's central banks are responsible for the largest wealth creation in human history? It is important to be on the wagon because when it is gone you’ve missed it. And what central banks cannot push, the price of bitcoin for example, rises even more as central banks cannot make more of it. The opportunities for central banks to reverse the band are few. In the long run, this means that the next 10 years will, overall, be a good period for, for example, stock picking. All forms of uniqueness (growth) will be highly valued to compensate for the fact that the value of money decreases at a rapid pace. If there is anyone who is still not convinced, take a look at the picture below. The market capitalization of the S&P500 divided by the Fed's balance sheet…. Source: Bloomberg Onwards and upwards. The wealth of American households is accelerating away from the change in GDP. Thank you Fed and all the world central banks! Citigroup's surprise index has weighed down and analysts' profit estimates are also starting to soften. Not a good combination and it has undoubtedly contributed to the weak development in the stock markets recently. It took a full 219 days for the S&P500 to have a decline of 5 percent. We will see how high the next bar will be.

Timing is everything. A fascinating graph that shows the importance of having reasonable timing in decisions.

Source: Goldman Sachs Despite a difficult month behind us, it feels reasonable to expect a stronger market during the last quarter of the year. Our view is that we are still in a rising market, although we are likely to experience some turbulence for a few more weeks. "Bear markets" are constantly declining with sharp rallies while "bull markets" continue to rise with some strong drawdowns. We therefore believe that we are still in a rising market. Some statistics to cheer you up. The S&P500 managed to rise by 0.2 percent in the third quarter (Europe -1.9 percent) which means six consecutive positive quarters. This has only happened eight times before and only on one of the (eight) occasions has the following quarter yielded a negative return. Two quarters later, it has in all cases yielded a positive return. In addition, for the past 20 years, October has been the fourth best month, thus much better than its reputation. Having pointed that out, October takes first place in terms of most frequent daily movements that exceed one percent. The Stockholm Stock Exchange, which is an excellent reference point, had risen by 30 percent at its highest about a month ago, but is currently at 20 percent. Even more important is that measured in USD, OMX has "only" risen by 13 percent, which is in line with the US stock markets. This is hardly excessive given the profit growth among the companies. The risk premium in the market is high. Investors are reasonably careless, and we are approaching the turn of the year. Global growth is well above average and interest rates are extremely low. Given how cruel the market has been to many investors this year, with sector rotations and a high concentration of companies driving performance, it almost feels obvious that the broad mass of investors will continue to reduce risk in their portfolios and then be short equities at year-end when the market rises. We'll see, but that's our main scenario right now.

We are now closing the books for the third quarter, and we look forward to the end of the year and above all the entrance for Truecaller on the Stockholm Stock Exchange on October 8! Thank you for this month and we'll hear from you later.   Mikael & Team Malmö on 5 October [/et_pb_text][et_pb_text admin_label="Coeli Nordic Corporate Bond Fund R-SEK" _builder_version="3.0.89" background_layout="light" module_class="gen-table-module" disabled_on="on|on|on" disabled="on"]

Coeli Nordic Corporate Bond Fund

Performance in Share Class Currency	1 Mth	YTD	3 yrs	Since incep
Coeli Nordic Corporate Bond Fund - R SEK	1.30%	-0.93%	3.38%	14.52%

[/et_pb_text][et_pb_text admin_label="Coeli Nordic Corporate Bond Fund R-SEK" _builder_version="3.0.89" background_layout="light" module_class="gen-table-module" disabled_on="on|on|on" disabled="on"] [cg_linear_graph id="31122"] [/et_pb_text][et_pb_image _builder_version="3.0.89" src="https://coeli.com/wp-content/uploads//2020/10/ncbr.png" show_in_lightbox="off" url_new_window="off" use_overlay="off" always_center_on_mobile="on" force_fullwidth="off" show_bottom_space="on" disabled_on="on|on|on" disabled="on" /][/et_pb_column][et_pb_column type="1_3"][et_pb_image _builder_version="3.0.89" src="https://coeli.com/wp-content/uploads/2019/01/Gustav-Fransson6.jpg" show_in_lightbox="off" url_new_window="off" use_overlay="off" always_center_on_mobile="on" force_fullwidth="off" show_bottom_space="on" custom_margin="||21px|" disabled_on="on|on|on" disabled="on" /][et_pb_text admin_label="Namn och title" _builder_version="3.0.89" background_layout="light" module_class="gen-single-ingress-module" custom_margin="||40px|" disabled_on="on|on|on" disabled="on"]

Gustav Fransson

Portfolio Manager of Coeli Nordic Corporate Bond Fund [/et_pb_text][et_pb_image _builder_version="3.0.89" src="https://coeli.com/wp-content/uploads/2018/10/Alexander-Larsson-Vahlman.jpg" show_in_lightbox="off" url_new_window="off" use_overlay="off" always_center_on_mobile="on" force_fullwidth="off" show_bottom_space="on" custom_margin="||21px|" disabled_on="on|on|on" disabled="on" /][et_pb_text admin_label="Namn och title" _builder_version="3.0.89" background_layout="light" module_class="gen-single-ingress-module" custom_margin="||40px|" disabled_on="on|on|on" disabled="on"]

Alexander Wahlman

Senior Analyst [/et_pb_text][et_pb_text admin_label="Fund Overview" _builder_version="3.0.89" background_layout="light" custom_margin="||20px|" module_class="gen-trustee-single-table"]

Fund Overview

Inception Date	2017-12-20
Investment management fee (share class I SEK)	1.00% p.a + 20% Performance fee (OMRX T-Bill Index)
Performance Fee. Yes	20%
Risk category	5 of 7

[/et_pb_text][et_pb_text admin_label="Top Holdings (%)" _builder_version="3.0.89" background_layout="light" custom_margin="||20px|" module_class="gen-trustee-single-table" disabled_on="on|on|on" disabled="on"]

Top Holdings (%)

LANSBK 1.25% 18-17.09.25	4.1%
NORDEA HYP 1.0% 19-17.09.25	4.1%
SWEDBK 1.0% 19-18.06.25	4.1%
WHITE MOUNT FRN 17-22.09.47	3.9%
B2 HOLDING FRN 19-28.05.24	2.9%

  [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built="1" fullwidth="off" specialty="off" _builder_version="3.0.89" module_class="gen-trustee-single-yield-section gen-pattern-section" custom_padding="0px|||"][et_pb_row _builder_version="3.0.89" custom_padding="||53px|"][et_pb_column type="4_4"][et_pb_text admin_label="VIKTIG INFORMATION" _builder_version="3.0.89" background_layout="light" module_class="gen-trustee-single-warning-blurb"] IMPORTANT INFORMATION. This is a marketing communication. Before making any final investment decisions, please refer to the prospectus of Coeli SICAV II, its Annual Report, and the KIID of the relevant Sub-Fund. Relevant information documents are available in English at coeli.com. A summary of investor rights will be available at https://coeli.com/regulatory-information-coeli-asset-management-ab/. Past performance is not a guarantee of future returns. The price of the investment may go up or down and an investor may not get back the amount originally invested. [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]