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So what's to say about the possible pandemic that isn't already said?

Maybe this: You may think that the market reaction in January was surprisingly subdued, but there is actually a very good reason for it, and it's not just the experience that previous scares like SARS and the swine flu have faded away without leaving too much of a trace.

In fact, there is a logical reason why the financial markets would keep calm and carry on, and more so this time than on previous occasions. It's called interest rates.

Recall that the value of a stock is, at least ideally, the present value of all future profits available to shareholders. Falling interest rates and hence falling discount rates increase present values, but that's not the whole story. They also reduce the importance of the near future.

For the sake of argument, imagine you expect a stock to deliver profits for 100 years (beyond which you add next to nothing to the present value), growing at 5 per cent a year. If, say, you reduce your discount rate from 8 per cent to 6 per cent, the importance of the first year halves. In the latter case, the first year's profits account for no more than 1,5 per cent of the total present value.

The figure would be higher for less patient investors with higher discount rates, but the dynamics would be the same – lower interest rates reduce the financial significance of the immediate future.

Now, pandemics don't last a century. They flare up and peter out within a decidedly short-term perspective for a sensible investor, meaning they might destroy short-term profits. So, when the short-term profits account for less due to lower interest rates, investors are less concerned about the spread of the coronavirus – as cynical as that may sound.

Still not convinced? Ever wondered why volatility has fallen over the last decade?

Well, that's exactly what you would expect, given the direction of the interest rates. Short-term events simply take on less significance.

Fund updates for January 2020

Pareto Investment Fund
The Norwegian market fell just under two per cent in January, while Pareto Investment Fund fell just under six per cent after two very strong months at the end of last year.


Pareto Aksje Norge
Increased tensions in Iran and the coronavirus have received much media attention, sending markets down marginally. With a relatively flat performance in January, it seems that this is what the market is discounting.


Pareto Nordic Equity
The Nordic market rose just over three per cent in January. The fund rose around one per cent during the month and was thus behind the benchmark index, following the strong end to the last year.


Pareto Global 
In sum, the first month of the year provided appreciating prices for the fund's holdings in good businesses. We used the decline in Discover to increase our holdings.


Pareto Nordic Return 
The fund rose around one per cent in January. At the end of the month, equities make up 84 per cent of the fund, which reflects our positive outlook for equities in the coming year.


Pareto Nordic Alpha
The fund continued its positive trend in January.


Pareto Nordic Omega
The fund continued its positive trend in January.


Pareto Nordic Corporate Bond
The fund had a very good development in January, driven by both underlying price appreciation and contributions from coupon payments.


Pareto Nordic Cross Credit
The fund delivered a positive return in January, somewhat above what the underling portfolio yield would suggest. The fund provides access to an attractive mix of Nordic investment-grade and high-yield bonds, with low sensitivity to interest rate fluctuations.


Pareto Global Corporate Bond
The fund developed well during the month of January, despite the falling global market. A strong contributing factor is the increase in more defensive names the past month.


Pareto Høyrente
Pareto Høyrente continues its positive trend from last year and delivers a solid return for the first month of the year.



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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