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And the Nasdaq composite index, a stock market sweet spot over the past five years, fell by 6.4 per cent from its mid-month peak. So, yes, February ended on a nervous note in the financial markets.

The main culprit: rising long-term interest rates. This isn't always a bad thing, as higher long-term rates and in particular a steeper yield curve are classical harbingers of increasing economic growth. You may recall that a downward sloping yield curve, on the other hand, is generally interpreted as a recession call.

However, rising long-term rates also reduce the opportunity cost for investors in stock and other risk assets, meaning there might suddenly be a real alternative after all. And it may be interpreted as a sign of impending or brewing inflation. There is certainly a plausible economic explanation in the massive support measures launched in no time by governments all over the developed world. At some point, there might be too much money chasing an insufficiently elastic supply of goods.

Perhaps. Nerves were palpably calmer at our offices, or rather our respective home offices. Again, we don't invest in the securities markets, we invest in securities. You often hear the expression that you can't see the forest for the trees. Well, in this case, I'd venture that a lot of investors don't see the trees for the forest. There was and is no shortage of viable trees in this forest.

While government bonds fell in value, which is simply equivalent to saying that benchmark rates rose, the credit spread development was another story. In fact, spreads on both US and Euro high-yield bonds fell by 26-27 basis points in February. Managing several bond funds with quite a bit invested in high-yield corporate bonds, we found this month to be rather more tolerable.

What's more important, most of these bonds are floating rate notes, meaning that they are delightfully insensitive to changes in the interest rate level. So, you can see why we are not that concerned about our bond funds.

As for the stock market, rising long-term interest rates were a boon for value stocks. For several years now, steadily falling interest rates have sustained a disproportionate increase in the value of stocks with more of their earnings far into the future – i.e. typical growth stocks. With rising interest rates, fairly priced value stocks suddenly look more interesting again.

In terms of relative performance, February was actually the fifth best value month in the history of the MSCI value and growth indices, with a history going back to January 1975. Value stocks garner little attention and produce few headlines, though, especially when compared to stocks like Tesla – which, yes, fell by 15 per cent in February (spoiler alert: we don't own Tesla stock).

Meanwhile, we're culling our trees as best we can and enjoying some good relative returns.

Fund updates for February 2021

Pareto Investment Fund
It was another strong month in the Norwegian stock market, which rose just over four per cent. It was an even stronger month for the fund, which rose six per cent.

 

Pareto Aksje Norge
February was a good month for the portfolio, with an increase of just over eight per cent, as compared to the benchmark index of just over four per cent.

 

Pareto Nordic Equity
February was a good month for the fund. The stock market was once again characterised by the companies' Q4 reports, as well as rising inflation expectations.

 

Pareto Global 
February was another solid month for Pareto Global. A key issue in the stock market was the rise in long-term interest rates and the portfolio companies that contributed the most were those that will profit from higher interest rates.

 

Pareto Nordic Return 
With a four per cent increase, February was a good month for the fund. The Nordic stock market managed an increase of two per cent. The fund benefitted from a continued high share of equities and an overweight allocation to Norwegian equities.

 

Pareto Nordic Alpha
February was a good month for the fund. The stock market was once again characterised by the companies' Q4-reports, as well as rising inflation expectations.

 

Pareto Nordic Omega
February was a good month for the fund. The stock market was once again characterised by the companies' Q4-reports, as well as rising inflation expectations.

 

Pareto Nordic Corporate Bond
February became the second month this year with a strong positive return for Pareto Nordic Corporate Bond, driven by continued spread tightening as well as coupon carry.

 

Pareto Nordic Cross Credit
For Pareto Nordic Cross Credit, interest rate movements are not a major concern since we normally hold bonds with a very short interest duration. February therefore turned out to be another solid month for the fund.

 

Pareto ESG Global Corporate Bond
Despite the turbulence and large falls in most global credit indices, the fund's return was largely unchanged during the month.

 

Pareto Obligasjon

 

 

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager's skill, the fund's risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments.

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