Monthly Newsletter Coeli Absolute European Equity - January 2022

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Monthly Newsletter Coeli Absolute European Equity - January 2022

January performance

The value of the fund decreased 11.5% in January (share class I SEK). The Stoxx600 (broad European index) decreased during the same period by 3.9% and HedgeNordic's NHX Equities fell provisionally by 1.9%.

Equity Markets / Macro Environment

Source: Bloomberg The front page of Bloomberg Businessweek sums many investors’ feeling right now. A strong finish to 2021 abruptly ended a few hours into the New Year, when the US 10-year interest rate rose sharply on Monday, the 4th of January. After that the strongest sector rotation that the author has experienced (in almost 30 years) began, coupled with a severe turbulence between different sectors and asset classes. After only 10 trading days, there were plenty of examples where companies with a high valuation and growth rate lost 40% (!) in relative returns compared to, for example, a typical European bank share. The magnitude is not unique, but the speed at which it occurred was rare. We believe this movement is exaggerated and that it will reverse. We also believe that the stock market will rise from today's levels and deliver a positive return for the year, but the terrain will be punchy. More about that under summary. The broad European indices performed relatively well as they are higher weighted in energy, commodities, and bank shares. The S&P500 and Nasdaq were down 5.3% and 9% while the FTSE (UK) rose by 1.1%. The Stockholm Stock Exchange was among the weakest in Europe and the broad index decreased by 9.8% percent. The fund had a very weak development and decreased by 11.4%. More about that below. The picture below shows winners and losers on the S&P500 in January. The trend is quite clear. Underweighted value companies at the top and Covid winners at the bottom. It feels like investors have declared the pandemic dead faster than the Swedish Public Health Agency. Source: Bloomberg The rotation from growth to value shares has been extremely rapid. It can only get better, right? The beginning of 2022 has been weak, to say the least. The picture below is as of January 27th and the beginning of the year was at that time the worst ever - to put things in perspective. Source: Bloomberg, Hedgeye Risk Management The rise in the US 10-year interest rate on Monday, January 4th, was more than two standard deviations from the mean. Below is the US 10-year interest rate and Goldman Sachs' Financial Conditions index. It is not the level itself that triggered the turbulence, but the rate at which interest rates moved. An important addition here, which no one can stomach when the gunpowder smoke overcast the markets, is that the interest rate can rise by another 100 points from today's level and still be positioned in the most favourable interest rate climate that has been experienced during the 2000–2019 period. Source: Goldman Sachs Below is an illustration of how shares have historically developed in response to various interest rate movements. It is the tails that cause significant disruption, which is shown here as the movement of more than two standard deviations. In all other environments, a positive development is ordinary. January 2022 certainly added to the historical database. When US Federal Reserve Chairman Jerome Powell was re-elected by President Biden on November 22nd last year, inflation was defined and accelerating. Our own US contacts, which are close to US politicians, then indicated that President Biden, in connection with the re-election, wanted a clear change in communication about how the Fed should tackle inflation. One reason for this is the declining popularity of the president, which correlates well with rising inflation and drains the purchasing power of the population. After his first year as president, President Biden is the second least popular in US history (only Trump has had worse numbers) and he is desperately trying to regain command. The trend of weak politicians is obvious everywhere in the world and in this event, Sweden also boasts great successes. As you know, the word transitory was officially buried by Powell on December 15th and was followed by several surprisingly aggressive comments from various Fed members. This further contributed to the turbulence, as the market interpreted it as the Fed lagging developments. The above events together with an accelerating inflation became the spark that caused the interest rate to rise sharply on the first day of the year. Despite a hot labour market and economy in the United States, Americans are increasingly negative about their own financial situation over the next 12 months. When, in the first week of January, the market listened in anticipation to Powell giving the first speech of the year it failed to give a clear impression that the Fed was in control and was in line economic developments. On the contrary, in fact, and that was probably Powell's worst speech. The famous Put option that has been in play since the financial crisis and which has meant that if it gets bad enough, the central bank comes in and supports, has at least temporarily disappeared or is far from the exercise price. Powell said that the US economy is very different today compared to the one that existed when they last started raising interest rates. The first message was that the speed of future increases will be faster. The second was that the uncertainty is greater than usual. The third was that the word steadily replaced the word gradually on how to reduce current monetary policy. In summary, their actions in the future will be less predictable and thus increase market volatility. The most recent austerity cycles (1994, 1999, 2004 and 2015) inflation was close to or below target. Now it is far over. Powell's performance received a sour reception from the market. Aware that the inflation target is paramount for the central bank, we do not believe that the Fed will be the one driving the country into a recession. But leading indicators clearly show that growth among the world's developed economies will enter a calmer phase with lower growth. We believe that inflation is to some extent transient and that it will most likely be a softened choice of words communicated over the next six months. It took just 48 hours for Minneapolis Fed President Neel Kashkari to say: "The way we bring that into balance is, we will tend to tighten monetary policy by raising interest rates. That would then not tap the brakes on the economy, but it would let our foot off the accelerator just a little bit. We just don 't know "how many rate hikes that will take.” This, together with Apple's fantastic quarterly report, contributed greatly to a strong finish in the last week of January. The picture below shows the market's estimate of how many interest rate hikes the Fed will make in 2022 (4.75). Neel Kashkari's comment above made the curve come down a bit (you must look closely). Source: Bloomberg Current wage growth is too strong to reach the target of two percent inflation. Perhaps a new workforce will enter the market when those who have stopped working to stay at home and trade stocks, cryptocurrencies and options feel that they are worse off than in the past two years? Inflation in the Eurozone is expected to have declined slightly in January, according to the latest survey. In addition to inflation data and the Fed, Russia/Ukraine were in the spotlight during the month which created uncertainty in the financial markets. It will probably continue in the coming weeks, and we hope for an abatement. The author is invited to the annual security conference in Munich, which takes place in a few weeks, together with some other international investors. It's going to be very interesting. "An apple a day keeps the doctor away". It's not just Apple that has delivered good quarterly reports so far. 75% of the S&P companies have so far beaten expectations compared with the five-year average of 68%. Note the differences between sectors. Above all, note technology. It is a long way to go, but our companies also delivered strong or very strong figures in January. More about that under company comments. Source: FactSet Gardengate! Prime Minister Boris Johnson did not think the Downing Street party was a party but just a work session in the garden. He is now fighting his most difficult battle and the odds of him being forced to resign in February are low. Source: Twitter We are doing our best for the “Corona Commission," says Minister of Social Affairs, Lena Hallengren. Wondering what it looks like when things go really bad? Source: Steget Efter

Long positions

If we put on our critical glasses, it can be concluded that, despite some divestments, we owned too many companies in the same category in January. For each individual holding, however, there is an investment thesis that we believe in. Even though several of our companies suffered dramatic declines in January, the news flow was clearly positive. In several cases we have increased our positions as we believe that many of our companies are in better shape than ever, at the same time as valuations have fallen. Truecaller This stock went on a real downhill in January. We had anticipated some volatility during Q1 for a few simple reasons:

• Many shareholders' lock-up has ceased, which means that more shares are (were) for sale
• The stock has had a strong performance since the stock exchange listing
• At its highest price levels, we thought the valuation looked somewhat strained

Adding to the above an increasing rotation from growth stocks to value stocks, there was a cocktail of factors that spoke against the stock in the short term. For these reasons, we sold a lot of shares at high levels at the end of 2021 and on the first day of the year in January. The share was down as much as 35% in January and of course had a large negative contribution to the fund's development. Despite this, we are satisfied with how we acted. At the beginning of the month, our holding corresponded to about a third of the position in November. The graph below tries to give a picture of how we have traded the share since the stock exchange listing. The black line consists of the share price since the listing. The grey field represents the fund's holdings since the same time. We owned 1.7 million shares prior to the Q3 report and decreased it to 600k at the beginning of the year. We now own approximately 1.3 million, again purchased on the January sale. What is hopefully clear is that we have been consistent in our trading and sold shares when the share price was high. In the same way, we have significantly increased our position in recent weeks when the price we assess has been under too much pressure. We participated in two different placements (sale of large shareholdings via institutional brokers) carried out by shareholders who owned the share for a long time while it was unlisted. The picture below illustrates active management. Source: Coeli Absolute European Equity Operationally, Truecaller is doing very well. The company's report for the third quarter far exceeded analysts' expectations. This was followed up in January with a reverse profit warning which showed growth of almost 110% (!) and an operating margin (before depreciation) of 49%. That margin should be compared with the financial target of 35% after 2024. As it stands today, the margin target has already been reached. We outline continued strong growth in Truecaller in the future, in line with the financial target of approximately 45% on average 2021–2024. At this point, the margin target appears to have passed and we believe that the company will continue to increase profitability because of the scalability of the business model. If we get our thinking right, the share trades at around 25x and 17x EV/EBIT on our estimates for 2023e and 2024e respectively. We find this attractive for a company with Truecaller's scalability and growth profile. CVS Group We have become accustomed to receiving good reports from the British veterinary company CVS Group. In January, it was time again. This time, the company grew by about 13% (of which 11 organically) and the operating margin improved. The company should be able to grow by 5–10% over a long period of time with a return on capital employed that exceeds 50%. Adding improved margins as the annual price increases are expected to exceed wage inflation. At the same time, the number of customer visits is expected to increase because of 1) increased pet ownership and 2) more veterinary visits per pet. The company has been a cornerstone in the portfolio since the summer of 2020 and will probably continue to be so if nothing unforeseen happens. On our estimates, CVS is valued at approximately 14x EV/EBITA 2024e (the financial year ends in June), or alternatively approximately 16x free cash flow. It is lower than in a long time. Despite good news, the stock correlated with the January rotation and fell -12%. Surgical Science The growth profile and the high valuation meant that Surgical Science was hit hard by the rotation, with a decline of -30% in January. At the same time, the news flow has been positive. During the month, new financial targets were announced for 2026, by which time the company wants to reach SEK 1.5 billion in sales and an adjusted operating margin of 40%. In addition, the large customer, Intuitive Surgical, shipped more robots than analysts forecast, and we note a frequent and positive news flow from another important customer, CMR Surgical. Sedana Medical The Sedana Medical stock also had a tough month against the background of the rotation. The price fell -24%. Here, too, we were pleased with the positive news, when it was announced that the British Medicines Agency NICE is recommending Sedana's product Sedaconda ACD as an alternative to intravenous sedation. A cost model shows that the cost savings for using Sedan's product can amount to £4,000 per patient. Victoria Victoria did remarkably well for a long time in the gloomy stock market climate. As the stock was also in the upper part of its “trading range” (see graph below), we chose to sell a part of our holding. When stressed sellers later turned the share price on a downward path, we bought back the shares we sold, and more. Victoria is now the fund's third largest holding. We believe that analyst estimates are too conservative, and our best guess is that the share price will be higher at the end of the year than it is today. The share fell -21% in January. Source: Bloomberg ArcticZymes The Norwegian enzyme company ArcticZymes submitted a good report for the fourth quarter. Sales for the full year landed at NOK 128 million, compared with the company's announced target of NOK 120 million. Growth excluding Covid-related sales amounted to approximately 63% in 2021. With gross margins of almost 100% and a relatively fixed cost base, it becomes clear how scalable the business is when sales rise sharply. For the fourth quarter alone, the incremental operating margin was around 80%. With that said, we think it is best to analyse ArcticZymes on an annual basis, as results fluctuate sharply between quarters. For 2022, the management wants to reach sales of 155 million. Assuming Covid-related sales fall by 70–80%, this implies a growth of 53–56% for other products. By 2025, the goal is to have a turnover of at least 350 million. With 2021 as the base year, this corresponds to approximately 29% in annual growth. At the same time, there is a clear acquisition agenda to supplement the current product portfolio, which is therefore not included in the figures above. As with many of our other highly valued growth companies, ArcticZymes decreased in January, despite good news. The decline landed at 6%. Wincanton The British transport company was the highlight of the month as it was one of the few long positions that made a positive contribution to the month's results. In January, the company announced that it expected a full-year result which exceeded analysts' expectations. The price rose 13% on the message. The company's new management has done an excellent job of cleaning up the balance sheet and repositioning its operations towards sectors with higher growth, such as e-commerce. However, the stock market still seems to perceive Wincanton as the mismanaged company it once was. In our opinion, the stock is traded undeservedly at single-digit profit multiples, and we believe that it is a matter of time before the market values ​​the company. It is the fund's lowest valued company and the share rose 5% in January.

Short positions

The short portfolio contributed with a positive result during the month. Our short futures on Nasdaq contributed the most. Some stock-specific short positions that contributed positively to the result were Vimian and Swiss Temenos.

Exposure

The net exposure, adjusted for our unlisted holdings, at the beginning and end of the month was 71 and 74%, respectively.

Summary

We had already begun to reduce our exposure to growth stocks when we entered 2022. For example, we sold our entire position in Swedencare during November/December at very attractive levels. In conjunction with the company making doing a stock issue last week, we bought again (smaller position). Due to the large shift in sentiment that took place in the market in the first days of the year, we accelerated the process. After about a week, we had sold about 15% more of these types of companies and at the same time we increased by the same amount positions in larger liquid companies with low valuation. Companies we bought were, for example, Volvo, Daimler, UBS and ABN Amro. We did this both to balance the portfolio and because we thought it was attractive levels. In addition, we increased our short-term equity positions and went short Nasdaq futures. In total, we thus changed 35% of the gross exposure (in comparison to today's total gross exposure of about 140%), which is a high figure, but we felt it was necessary. It has so far been completely right as the portfolio after this responded better when the market moved in different directions. We are of course frustrated and disappointed with the start of the year. At the same time, our confidence in our equity analysis strengthens (the factory that produces excess returns), as we have had several strong data points in recent weeks. The analysis is there to create a strong conviction about a position, a necessity if you have fewer and larger holdings. It is then the selection and concentration that over time creates excess returns. We have shown this historically and when we receive these strong data points, we know that the factory still works. Important. With a unique and concentrated portfolio, it is difficult to protect oneself in a market with significant declines in several holdings. Many of the companies have no natural hedges as they are completely unique. How to effectively hedge Truecaller? The operations were in principle exclusively flow-driven as there was an outflow from several small caps and technology funds which then had to sell parts of their holdings. The picture below shows schematically where the declines were strongest in the portfolio. Last year's winning shares were aggressively sold. Source: Coeli Absolute European Equity The markets have been really oversold in recent weeks. A bounce is on the cards. Source: Kepler Cheuvreux One of the better contraindicators available is to study the investment behaviour of retail investors. American retail investors are now more negative about the stock market than when covid struck in March 2020. The historical return for the S&P500 when small savers have been so negative (only January 2013 has been worse), has after three months been about +5%. Maybe the depression of retail investors has little to do with the fact that they had too many meme stocks? Shares that have gone viral, had been declared cult and that were often aggressively shorted where average Joe/Jane wanted to get the big capitalists (woe betide the hedge funds that were short a stock). The Social Democrats' youth union also bought Gamestop and raffled off shares in January last year when the madness was at its greatest. An epic advertisement from SSU is reproduced in our monthly letter from January last year and offers entertainment at its best. Biotech shares have not brought joy to the market in the past year either. It was actually the worst year for the sector since the early 2000s. Something we also unfortunately got to feel through our investment in Atai. Will the acquisitions come from the pharmaceutical industry this year? It does not feel unlikely. Source: Fact sheet och Jefferies Research Another image that explains the pessimistic view of retail investors right now. It feels like law of nature that the curves will meet before it turns. Source: Bloomberg Goldman Sachs sentiment indicator shows that investors are still cautious, although the position has risen slightly in the past week. Source: Goldman Sachs The so-called Bull/Bear index was around -30 at the end of January. Less than 98% of the time since 1990… Feels too negative. Source: The Leuthold Group The next picture is a new favourite. Last week, private individuals and institutions bought put options as if the earth were going to collapse the next day. Last week, the average volume on the US stock exchanges, at face value, was USD 1,000 billion, per day! On Monday, January 24th, when the stock market, as we believe, reached its lowest level, turnover was USD 2.2 trillion in nominal value, with the majority being put options. Incredible. It feels like an excellent contraindication, even though we have no statistics on it. Source: Goldman Sachs One may wonder if there is any living life in Europe? In any case, liberalism is dying after the dependence on various subsidies and contributions to citizens has exploded in recent years. A good example is when S and V on the last day of the month round the pension group and distribute unfunded alms to the people. The first payment will be made in August one month before the election. The similarity with the development in Japan is striking. We continue with more pictures and history. The image below shows the Consumer Confidence among the American consumer for the past 70 years. Last week the level was 68.8 and that is a lower level than 90% of the times since 1952. Having such a low level after a record high economic activity and after a strong year in the stock market is very unusual (has probably never happened before). Source: The Leuthold Group The correction in the stock market has not differed historically regardless of whether Consumer Confidence was low or high. However, the return period after a correction has differed significantly depending on the level it has been at. The historical return, when we have been around today's levels or lower, has been +33.3% the following 12 months compared to +20.9% when we were at high levels in Consumer Confidence. Nobody knows where we are in 12 months in terms of returns, but what we do know is that the apathy among average Americans is high. The last data point is that a "bear market" has never occurred before when Consumer Confidence is as low as today. Source: The Leuthold Group Below shows that share prices in Europe (Stoxx 600) have risen last year at the same time as valuations have fallen and are now at just under P/E 15x for the next 12 months. This is in line with the historical average of the last 25 years. A good picture that partly explains why we have allocated just over 25% of the fund's capital to the UK. Small companies in the US and Europe have had headwinds since last summer. Our belief is that we are approaching a turning point, and this may coincide with when the US long-term interest rate reaches its peak in a few months (our view). Given the extreme differences between the development of different sectors in January, how have different sectors developed in an interest rate hike cycle? The picture below shows the development of the last 30 years. Technology at the top and commodities and financial stocks at the bottom. This is one reason why there will probably be a reversal between the sectors in the coming months. Source: Bloomberg, Strategas Securities, Nordea To those of you who have not yet given up this extended reporting of this extraordinary month, now comes the summary. In a world of endless data and fast information transfer, it is important to find a point far away on the horizon and steer towards it. We divide our point into several sub-points below.

• We believe the lowest level in the market was set on Monday 24th of January. It will certainly be tested several times, but our best guess is that the level holds.
• Volatility will be persistent and at times high, primarily because no one really knows, not even themselves, how the Fed will act during the year.
• The US long-term interest rate is likely to reach its highest level before the summer of around two percent. Then the US dollar also peaks.
• Economic growth is gradually declining, and this is also dampening inflation and to some extent also the need for further interest rate increases.
• All other things being equal, it means that cyclical companies end up in the shadows in favour of fast-growing technology companies. An at least partial reversal of what January offered.
• Europe does not have growth companies such as in the USA, but it is the small cap companies that have taken that position, not least in Sweden. The capital will probably return to that asset class within a few months.
• Invest in companies that can pass on cost increases to customers so that cost inflation does not break earnings.
• Quality companies are more important than usual. Speculative companies have had their two years in the spotlight when liquidity in the systems was at its highest.
• Earnings growth wins by a certain margin over multiple compression. We believe that this year, too, will end with a positive return, albeit significantly lower than in 2021.
• And finally, the most important, really good stock-picking is the most important for a strong return.

The above theses and forecasts will be re-evaluated many times before the end of the year. It is extra important to be psychologically sensitive and flexible and be prepared for the unprepared and act when the terrain changes. As we did, for example, with the portfolio at the beginning of the year. The US stock market has just closed on January 31^st as I write this and in two days the Nasdaq has risen by as much as 6%. Those who felt comfortable a few days ago with cash in hand are now stressed about too low exposure. It's like an unusually well-directed drama. We extend an unusually large thank you to our investors for their trust and we continue the marathon.   Mikael & Team Malmö February 3rd, 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%

[/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_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="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]