$1 Billion Swedish Hedge Fund Bets Draghi to Aid EU Stocks

Catella Hedge Fund, a Swedish investor with more than $1 billion in assets under management, is buying up stocks it says will do well if Europe’s recovery picks up.

After returning 8.2 percent last year and 7.5 percent in 2013, the self-professed risk-averse fund shifted its investments this month to profit if Europe’s economy starts growing at a faster pace, Co-Founder Ulf Stroemsten said in an interview in Stockholm. The fund targets a minimum annual return of 6 percent.

Catella’s strategy is to pick stocks that did badly last year and whose potential for a rebound is under-estimated. The prospect of unprecedented stimulus from the European Central Bank, as President Mario Draghi prepares to unveil his bond-purchase program on Jan. 22, is also likely to support stock prices, Stroemsten said.

“The challenge for 2015 is what’s going to happen with the economy of Europe,” Stroemsten said in an interview at Catella’s headquarters in Stockholm’s financial district. “What we have done -- in January -- is to increase our exposure to some companies that will benefit from the European recovery.”

Those changes include adding stocks such as ABB Ltd. and Trelleborg AB and selling corporate bonds, he said. Catella is short Svenska Cellulosa AB, Stroemsten said, meaning it expects the stock to decline in value after trading at more than the fund calculates is justified.

Swiss Franc

Trelleborg, which gained 3.9 percent last year, rose 0.8 percent as of 2:20 p.m. Stockholm time, bringing this year’s advance to 5.4 percent. ABB shares, which declined 10 percent last year, recouped earlier losses to trade down 0.2 percent.

The stock has slumped 19 percent so far this year after the Swiss National Bank abandoned the franc’s cap to the euro last week, a move that sent the Swiss currency soaring.

Catella was “positively affected, short term at least” by the SNB’s actions, Stroemsten said. “We didn’t have any exposure -- I mean we are Nordics,” he said. “It didn’t hit us at all. The way it could affect us is if it has any long-term affects on where yields and spreads go, but we haven’t seen much of that yet.”

Meanwhile the prospect of a weaker Swedish krona has made the country’s exporters more attractive and “affected the decision to move more into cyclical companies,” Stroemsten said.

Catella’s best wager in 2014 was Unibet Group Plc, the Swedish-listed online betting company, whose shares soared 74 percent, and IFS AB, a Swedish firm that competes with SAP AG. IFS rose 55 percent in 2014. While the gaming industry “still has more to give,” Catella has cut its exposure because of the share development, Stroemsten said.

Oil Fallout

The fund, which has a mandate to focus on Nordic securities, has reduced the share of fixed-income instruments such as corporate bonds in its portfolio after returns disappointed, Stroemsten said. That challenge was exacerbated by the recent plunge in oil prices, with high-yield Norwegian assets contributing to negative returns for Catella’s fixed-income assets in the fourth quarter, according to Stroemsten.

Stroemsten says Catella is likely to favor stocks over bonds “at least for the foreseeable future -- it comes back to what happens in Europe,” he said. “We have our expectation that we’re going to see a slow recovery in Europe. Should that view change, then we will probably see spreads coming down again and in that position I could very well see myself moving back into bonds.”

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