SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

Skandia Global Funds plc
Annual Report and Audited Financial Statements for the year ended 31 December 2011
SKANDIA SWEDISH EQUITY FUND
INVESTMENT ADVISER’S REPORT FOR THE YEAR ENDED 31 December 2011
Skandia Swedish Equity Fund – Enter Fonder AB
Below is a report from the Investment Adviser of the Skandia Swedish Equity Fund for 2011.
The Skandia Swedish Equity Fund was launched on 13 September 2000 with a starting Net Asset Value per share of SEK 10.00.
Investment Adviser’s Commentary
The Skandia Swedish Equity Fund underperformed its benchmark, the SIXPRX Index, for 2011. The fund returned -22.04%,
compared to the benchmark index that returned -13.60%.*
During the first quarter, the overweight exposure to industrials was the main reason behind the lag, as the sector underperformed the
market over the quarter after a very strong finish to 2010. In addition, slightly disappointing fourth quarter numbers raised questions
on how Swedish exporters will be able to handle the combination of a strong Swedish Krona and rising input prices. The Japanese
earthquake added to concerns, especially for auto-related names which will most likely suffer from production disruption in the
second quarter.
One of the main detractors from performance included Electrolux, which suffered from weak sentiment for consumer stocks in
general, compounded by the board‟s decision to only pay a small dividend. Autoliv was affected by supply issues affecting car
production worldwide and the earthquake in Japan impacted their operations in the region. Meanwhile, Sandvik suffered from a
number of misfortunes, including Australian floods affecting an important end market, productivity issues in the materials division
and concerns about Sandvik‟s Nuke business after the Japanese earthquake. In addition, Indutrade was weak, reporting a
disappointing fourth quarter, mainly due to its acquired company not performing according to expectations.
The largest positive contributors included MTG, which rebounded, supported by strong market data from Sweden and Russia, and
JM, which reported solid fourth quarter numbers on the back of a strong residential construction market in Sweden. Swedbank
performed well due to new financial targets including a buy back mandate, while Hexagon benefited as the Intergraph acquisition is
attracting foreign investors.
In the second quarter of 2011, The fund‟s underperformance was largely due to not owning Ericsson, a strong performer following
its Q1 results. Other negative contributors included JM, as the market was concerned about the impact of higher interest rates on
housing, and MTG, as a weak ratings trend triggered concerns over higher programming costs. Meanwhile, Avanza suffered as its
much-liked CEO stepped down, Lindab was weak due to management guiding down ahead of its Q2 results, and Boliden was hurt
by disappointing results due to internal problems and worries about global growth.
On the positive side, ABB performed well thanks to a good order intake, while Hexagon rose as its transition to more software is
being rewarded. Autoliv benefited from indications that auto production is coming back after the Japanese earthquake and parts
shortage, Alpha Laval gained as late cyclicals were increasingly in favour, while Haldex had a good run ahead of its spin-off and big
dividend pay-out.
In the third quarter the most severe setback occurred in August when the European debt crisis escalated, sending risk premiums up,
while risky assets tumbled. The Skandia Swedish Equity Fund underperformed its primary benchmark, the SIXPRX Index with a
total net return of -23.9%, while the benchmark index declined by 19.8% in the third quarter.* In general, the portfolio‟s holdings
were tilted towards a more positive scenario than the one that materialised during the summer.
Among the biggest negatives for the portfolio included the shares of the holding in JM, which fell on fears that the residential
housing market would turn down sharply. The holding in Volvo suffered a setback on cyclical concerns heightened by the
company‟s bad performance in the last downturn. Autoliv was subject to an anti-trust investigation, which hit the share price, and
cyclical concerns also weighed on its stock. Shares in Hexagon proved vulnerable to worries that the company‟s relatively high
leverage would exacerbate cyclical impacts, while MTG‟s stocks succumbed to fears that the Scandinavian ad market would be hit
by the downturn.
The biggest positives for the fund included a position in Kinnevik, a holding company with stable cash flows whose shares trade at a
high discount; Millicom, which benefited the fund thanks to solid top line growth in combination with high payouts and share buy
backs; Meda, which is seeing the return of organic growth, while becoming more aggressive on acquisitions; Mekonomen, which
posted strong results, notably from a recent acquisition; and H&M, which is being helped by lower input costs, and is seeing market
investments starting to pay off.
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