Monthly Newsletter Coeli European – September 2023

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Monthly Newsletter Coeli European – September 2023

SEPTEMBER PERFORMANCE

The fund’s value decreased by 8.5% in September (share class I SEK). The Benchmark decreased by 3% for the same month, measured in EUR. *Adjusted for spin-off of Rejuveron.** AEE: Absolute European Equity, CE: Coeli European, Benchmark: MSCI Europe SMID Cap Net Total Return EUR.Please Note: On the 4th of September 2023, the strategy of the fund officially changed from a European long biased equity long/short fund to a European active long only fund. Simultaneously, the name changed from Coeli Absolute European Equity to Coeli European. The track record highlighted in colour in the table above is that of Coeli Absolute European Equity.

EQUITY MARKETS / MACRO ENVIRONMENT

September is, so far, the weakest stock market month of the year, which is normal. The main reason why the stock markets came under pressure was the central banks' message of higher for longer, i.e.  the previously communicated interest rate paths were adjusted and now project a slower return to a more neutral level. The US central bank kept its interest rate unchanged during the month. The difference compared to the last meeting in June was that they then predicted that the key interest rate would be lowered by one percentage point next year, which was now changed to a half percent reduction. The European central banks, including the Riksbank (Swedish Central Bank), delivered a similar message. This meant that, for example, the US 10-year interest rate reached its highest levels since 2007. Source: Bloomberg The historical development per month for the S&P500 since 1928. September has clearly been the weakest month and that was also true this year with a decline of 4.8%. Source: Goldman Sachs Further reference points, and all measured in local currency, were that the Nasdaq fell by 5.9%, the DAX by 3.8%, the MSCI European SmallCap by 3.0% while the FTSE in the UK was one of the few indices to end at plus with 2.3% in return. The driver behind that was the oil companies' success on the back of a rising oil price. The fund had a weak month and fell by 8.5%. The principal reason for that was that the Swedish krona had a strong development against the euro and above all against the pound, where we have around 20% exposure. The weakening of the euro and the pound adversely affected the fund's return by approximately 2% points. The other contributing factor was that the CMA (Competition and Markets Authority) in the UK unexpectedly announced on the 7th of September that it would review the veterinary industry to ensure fair and good competition. This led to strong price reactions in, above all, our holding in CVS but also in Pets at Home. Our view is that the markets’ reaction was exaggerated and following the sharp decline, we have increased our holding in CVS. This news, in isolation, affected the fund's development by approximately -1.6% points. More about this and the fund's development in the portfolio companies section. Although the Swedish Krona contributed with a negative return for the fund this month, it is gratifying that the Riksbank is finally starting to sell Euros and Dollars from the currency reserve and buy Swedish kronor. The fact that they are now doing it and, at least in the short term, have had a great success is reassuring. If it continues, which we believe and hope, foreign capital will gradually begin to return to, among other things, the Stockholm Stock Exchange. The Swedish krona has been a major short position for many global currency speculators, and one reason for the strengthening last week is likely that they have started to cover their positions. Source: Bloomberg Inflation is now falling on a broad front and even in Sweden it is starting to loosen up properly. On the last day of the month data published showed that the inflation rate in EMU fell to 4.3% in September from 5.2% in August. The expected change was 4.5%. The decline was broad and core inflation fell to 4.5% from 5.3% the month before. The expected change was 4.8%. The probability that the ECB has already made its last rate hike is relatively high. The important question that follows is how long it takes for them to lower the rate. Source: X We believe that the coming months will continue to bring positive news regarding inflation and by the end of the year, Sweden can be close to the goal of two percent. The fact that the Riksbank says interest rate will possibly not be lowered until the second half of 2025 is just as likely as when they said last spring that the interest rate would not be raised until the second half of 2024. We don’t! Quote:” I think it is worrying that people believe in our forecasts.” Erik Thedeen, Chairman of the Swedish Central Bank. Source: SVT If you zoom out a bit, to get a 233-year perspective, we are now at a normal interest rates level. Source: GDF, Deutche Bank The oil price rose 23% during the quarter. Oil, arguably the world's most politicized asset class, has risen in price as Russia and Saudi Arabia have cut output. It is not demand that currently determines the price of oil, but supply. It is speculated that both Russia and Saudi Arabia would like to see Donald Trump become president again and rising oil prices are a good way to make life increasingly difficult for President Joe Biden. Source: Bloomberg, Holger Zschaepitz A rising interest rate indicates rising economic activity and there is a clear correlation between the interest rate and the price of oil. Source: Bloomberg, Holger Zschaepitz The effects of the sharply rising interest rates are beginning to show in the real economy. Europe is bordering on a mild recession, and it seems reasonable to believe that interest rate hikes are over. Below is the lending to European households. A certain slowing down can be noted, to put it mildly. Source: Longview Economics, Macrobond Even in the United States, which has shown extraordinary strength in the economy, some cracks in the facade are beginning to surface. Household living costs are now at higher levels than at the outbreak of the financial crisis in 2008 and bankruptcies are increasing, see image below. Source: Apollo Research, WhaleWire The 76-basis point increase in US long-term interest rates in March led to the collapse of Silicon Valley Bank. Six months later, the interest rate has now risen by a further 60 basis points. Will anything else break in the coming months? Source: Bloomberg, Goldman Sachs The stock market is of course concerned about interest rates, but sector developments clearly show that investors believe in a soft landing in the economy. The relationship between yield in cyclical vs. defensive companies is the highest in several years. Source: Bloomberg, UBS However, consumer stocks have recently come under heavy pressure. That includes luxury stocks such as our holding in LVMH whose share price fell by 8.4% in September (after -7.7% in August). For the year, the rise is now a modest 5.4%. Our view from here is that we are near a bottom in the share price for LVMH, as the image below could indicate. The stock has fallen a lot in a short time and a P/E ratio of 20x for 2024e is low for one of the world's best companies. Source: Bloomberg, UBS The decline in the LVMH price has meant that Bernard Arnault lost the lead to Elon Musk in Bloomberg's "Billionaires Index". Source: Bloomberg This year's rise in the American stock markets has, as is well known, been extremely concentrated to “the magnificent 7”, which has risen by an average of around 50%. A consequence of that is that if you buy into the S&P500, you get 34% exposure to these companies that trade at a valuation around P/E 50x. "S&P493" is trading around unchanged levels on the year. Source: Bloomberg, Apollo Cheif Economist This is likely a contributing factor to the development of recent months, where the allocation to the American stock markets has decreased in favor of the European ones. The valuation difference has never been greater and for us as European investors it is of course positive with inflows. Source: Golman Sahs Another development that favors us is that, since a month ago, hedge funds are now net long European real estate shares. It is a sharp change since last summer (see black curve) and we think it will continue now that most people believe we are at or near the interest rate peak. In Sweden, the listed real estate sector is disproportionately large and the vast majority of investors are underweight the sector. We ourselves have noticed a rising interest in the sector in the last month. Through its holdings in SLP and Corem, the fund has approximately 10% exposure to the sector. Source: Golman Sachs The year's worst sector so far, see image below. The hype in renewable energy, especially in 2021, led to large misallocations. The sector is dependent on large investments that require cheap financing, something that does not exist today. Source: UBS Something to keep an eye on. The difference between the Italian and German 10-year interest rates. Source: Bloomberg Roughly 80% of all US dollars in existence have been created between 2020-2023. Unfathomable. Source: Win Smart, CFA SEK 72,000 a month is the expected minimum wage for American workers. It feels high… Source: Bloomberg News Elon Musk has apparently refused Ukraine several times to use his satellite network Starlink, now jokingly renamed Tsarlink. Source: X On the last day of the month, the Center party meeting turns positive to nuclear power, after in recent years it has been involved in the dismantling of six fully functioning reactors with enormous social consequences as a result. Impressive… Source: StegetEfter

Portfolio Companies

Wincanton During the month, we received a positive message from Wincanton, our British logistics company. The company has long been burdened with a capital-intensive pension debt that in recent years has swallowed around £20 million in annual cash flows, which can be put in relation to the market capitalization of £340 million. During the month, Wincanton's pension trustee decided that the company no longer needs to pay more money into the pension plan, whose assets are now deemed to be large enough to meet the company's obligations. This was of course well received by the market, and the share price rose 13% in September. If we were to calculate the present value of 10 years of pension outflows at a discount rate of 10%, we conclude that this news in isolation is worth around £130 million, which corresponds to almost 40% of the company's value. The pension issue has been something of a hurdle for the stock. The capital that is now freed up can be used for a combination of share buybacks (which we have argued for) and organic growth investments, for example in warehouse automation. On our estimates, Wincanton trades at a low P/E of 8x for 2024e. CVS Group As previously mentioned, in September came an unexpected announcement from the CMA that it intends to audit the veterinary industry. The reason for the review is that the CMA has noticed rising costs for veterinary services, at the same time as the market consolidated by several major veterinary players (including EQT-owned IVC Evidensia, CVS Group and several others). The authority wants to investigate whether there is sufficient price transparency in the industry, and whether customers can clearly know that the clinic they visit is owned by a larger veterinary chain. The uncertainty surrounding the review caused the CVS share to fall as much as 23% in September. The authority regularly conducts reviews of industries that have undergone a major change, and the review itself does not have to imply knock-on effects. We will receive the outcome of the review in 6–9 months. We have done a lot of work on the potential outcomes of the investigation and feel comfortable with our holding in CVS Group:

• If we compare CVS Group's growth with the growth in the number of employed veterinarians, it is clear that most of the company's growth has come from volume growth, versus price increases.
• Inflation in the industry is above all driven by a lack of access to vets (which was the case for a long time), as well as recently increased prices for medicines.
• We have had several discussions with the company's management and feel confident that the company has not acted inappropriately in any way.
• It is worth noting that the CMA informed journalists in advance of the review during market open hours on a Thursday before the news was officially released on a Friday. This was motivated by the fact that the authority did not believe that it was information that could influence the share prices. This may indicate that the authority simply does not see this as a particularly big deal (and/or that they have a certain lack of competence regarding the stock market...).

In conclusion, we believe that the market's reaction to the news is clearly exaggerated, and we have bought more shares. The company is expected to grow sales by 4–8% per year in the coming years, while the company's strong cash flows can be reinvested organically and for further acquisitions at a good return. During October, CVS also came out with a report showing that the company is doing very well operationally. The stock now trades at around P/E 17x (EV/EBITA 12x) for next year's forecast earnings, which is clearly lower multiples than what CVS has been rewarded with historically. Pets at Home Pets at Home, which is part retail and e-commerce business, part veterinary business, also saw its share price fall against the backdrop of the CMA’s actions. In this case, however, the profit from the veterinary segment accounts for about a third of the group profit, and Pets at Home's price drop was about 11% for September. LVMH LVMH was one of the fund's worst contributors during September. It's been a less than perfect storm for luxury companies during the month. Investors remain concerned about the Chinese consumer, but there has also been talk of Europe starting to show signs of weakness. Several of the companies in the sector have been out and lowered expectations for Q3, but also commented that Q4 is more in line. In addition, interest rates have continued to climb, which is negative for this type of company valuation. Our view is that LVMH has come down too much in September (-8.4%) and is now down 20% from its peak and we think the stock could rebound strongly toward the end of the year. The stock trades at P/E 20x and 18.5x for 2024e and 2025e. Something we think is too cheap, given the long-term structural growth and a large element of value creation for us as owners. SLP The share price in our logistics property company, SLP, fell by around 10% during the month. The property sector in general was under pressure and in Sweden the sector index fell by 6.5%. During the month, there was also a placement of one of the founders' B shares (retaining its A shares). We guess he will use the money for other projects. The placement was made at a 7% discount and the company brought in Fidelity as a new major shareholder. We think this is very positive and great sign of quality! Corem After being the fund's top performer in July and August, Corem retreated about 23%, adjusted for a dividend. No significant news to report but it was largely sector- and flow-driven.

Summary

September was a difficult month where central banks and rising interest rates put pressure on share prices and, in addition, with very low liquidity in the market. We are of course disappointed with the outcome for the month, but to understand the result, we can conclude that if you adjust for currency movements and the unexpected event in CVS, the rest of the portfolio traded more or less in line with the market. We believe that the market, in many cases, has been very quick and gloomy in its interpretations of various news. This applies both at the company and macro level. An example to show the nervousness in the market was when one morning a brokerage firm lowered the recommendation in Axfood from Hold to Sell and in addition trimmed its estimates by 0-3%, that is, basically nothing. The stock immediately fell 5-6% to the new target price amid heavy trading. By end of the day, the stock had recovered and was down a more modest two percent. It feels like the market is reacting without asking or analyzing new information. Another shining example is (unfortunately) our own holding in CVS, whose share price fell by as much as 25% on the news we reported. Our basic thesis, after a lot of analytical work, is that in 6–9 months when the review is out there will be no or minor adjustments for CVS's daily operation of the business. But the market has neither the patience nor the nerve to own the stock now. In our world, risk/reward has now gone from attractive to very attractive. However, the disclaimer is that we can of course be wrong. We also think the market was quite negative regarding the Fed's message about a longer and higher interest rate path. The main reason for the longer interest rate path was not that they saw higher inflation than expected, but because the economy was more robust than they had previously expected - thus they see a lower risk of recession. Source: Federal Reserve, Kepler Cheuvreux In addition to this, the new interest rate path is not a hard commitment, it is a forecast that contains, as they underlined at the press conference, an extraordinary uncertainty. We can also see that the 19 members of the FED committee have different views on the interest rate going forward and with a considerable spread. Source: Macrobond, Kepler Cheuvreux The fact that the Bank of England, the Bank of Japan and the Swiss National Bank all left interest rates unchanged in September was also ignored by the market. Below is a picture that speaks against a lasting stock market rise. When the profit level among US companies falls below the short-term interest rate, it has historically led to declines in the stock market. However, if profits rise and interest rates fall, the fallout changes. Even US small caps have had a weak year so far compared to the larger companies. They are now down to a 22-year low in relation to large companies and, reasonably enough, capital should soon find its way to these companies as well. Source: Bloomberg, John Authers The image below shows that Nasdaq's decline after the summer is now down to approximately the levels where the fall previously slowed down and led to new gains. Source: Bloomberg The rising interest rates have put considerable pressure on growth stocks, while cyclical stocks have benefited, see image below. There are great forces that have been set in motion. Source: Datastream, Kepler Cheuvreux The S&P500 and Nasdaq are now down to their most oversold levels since September 2022. Source: Themarketear.com The volumes of short positions in the market have increased significantly in the last month and contributed to the declines. The reverse applies when the positions are to be closed. Source: Goldman Sachs October and November are historically very strong stock market months, especially when the return has been positive until the end of the third quarter, as this year. Statistics say that since 1900, there have been 56 years where the stock market had more than a 10% return in the first nine months (like this year). In 48 of those cases, the stock exchange during the fourth quarter had a positive return of 4.6% on average. The best fourth quarter was 1985 with 17%. The worst was in 1929 with -28%. Source: Goldman Sachs The return also seems to be stronger in the fourth quarter, the stronger the first nine months have been. Below are the data for the Nasdaq100, which in the first nine months of this year rose by a whopping 34.5%. Source: Themarketear.com Below are the September data and the fourth quarter's development for European small and mid-caps. Source: Coeli European 90% of American companies are now in a "black out period", i.e., they cannot make any buybacks as the reports for the third quarter are approaching. November and December are the months when the most shares are bought back in the market, which of course makes a positive contribution to the stock market. Source: Goldman Sachs So, what does all of the above mean for the end of the year? In recent days, interest rates have continued to reach new highs, which has created some turbulence in the market, and the stock market needs to see a stabilization of interest rates before moving forward. We also noted that the sales flow of CTA's in the last week was at record levels, which left its mark on the stock market. The good news is that Goldman Sachs calculations also show that the programs should be completed within days. Our best assessment is that the combination of the fact that many stocks are now oversold and that we are entering the seasonally strongest period means that we believe that the fourth quarter will also provide a positive return. In addition, we believe that the coming months will show continued falling inflationary pressure and it would be strange if this did not contribute to more positive market sentiment. In the long run, it leads to an expected first interest rate cut, but that is probably six months away (but earlier than what the central banks have communicated). However, one must have respect for the fact that reduced globalization and the war in Ukraine, all other things being equal, pose a negative contribution to global inflationary pressure. The green transition is also driving up prices in some areas. We thank you for your interest and look forward to the last quarter of the year. Mikael & Team Malmö on October 5th, 2023 [/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 KID 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]