The stock market year started strongly in Europe and the Nordics, while global stocks had a somewhat more difficult time. The fact that American technology companies were trading sideways initially dampened the development of global indices. When they later began to fall sharply, they drove one of the worst months for the world's stock markets in a long time. Trump's harsh rhetoric regarding trade tariffs (and corresponding countermeasures from the rest of the world) is generally cited as the main reason, but for us it seems somewhat thin. We see a flow-driven and systematically sold-off market that has exaggerated the fundamental development. Given this, we continue to hold tight to our put options in anticipation of what we see as a continued turbulent period in the financial markets. Despite its strong start, the Swedish stock market (OMXS30) suffered its worst month in 5 years (since the Covid outbreak in 2020) and has thus erased almost the entire year's rise.
The hedge fund Crescit has benefited from an early overweight to Europe during the year, which we have gradually phased out during the quarter in favor of fixed income investments and alternative strategies. The expected volatility has been very volatile during the year and created several good opportunities for both buying and selling options. We have a variable, but well-balanced, exposure to expected volatility and our extended portfolio protections have served us well during the year. The portfolio protections have also enabled us to lock in large parts of the year's accrued returns. After an unusually good start to the year, where all of our sub-portfolios contributed positive returns, we have successfully reduced our exposure to risky assets. The volatile market suits Crescit's strategies very well, which means that we have provisionally returned just under 4% already during the first quarter of the year. At the same time, global equities have lost -2.14% and Nordic credits have returned +2.34%. The Swedish treasury bill has given a “risk-free” return of 0.55% during the period. With increased uncertainty and volatility in the markets, we see good opportunities to continue delivering a good return during the year.
The year started strongly for the stock market and thanks to well-considered option exposure and low expected volatility at the end of 2024, we were able to capitalize on that movement. During the first 6 weeks of the year, Crescit generated a return on par with the global index but with just under half the realized risk.
As always, we adapt to the market situation and remain flexible in order to be able to create a competitive risk-adjusted return. In recent years, world indices have benefited from the strong increase in the value of American technology companies, but if that trend reverses, the world's stock markets could face a longer period of headwinds. In such an environment, it becomes even more important and relevant to be able to use alternative strategies, which we see as one of the greatest strengths of special funds. After many years in the "TINA" environment that meant that there was a lack of sensible alternatives to stocks, we have now entered an environment where mixed strategies can provide a similar return to the stock market but with better balanced risks. In our opinion, interest rates have normalized and a further return to the very low (or even negative) levels that we have had over the past decade appears unlikely. In such an environment, it becomes very important to be able to diversify not only across asset classes but also across strategies. Alternative funds offer investors an opportunity to obtain a reliable return even in uncertain environments where traditional asset classes are disadvantaged.
