LHV Pensionifond XL

November 2024: We increased equity investments

Kristo Oidermaa and Romet Enok, Fund Managers

Donald Trump’s election victory spurred a strong rally in US indices, with the S&P 500 ending November up 5.7% in dollar terms. Meanwhile, the Euro Stoxx 50 index declined by 0.4% in euro terms during the month. The emerging market index fell by 3.7% in dollar terms, largely driven by a 4.4% drop in China. The OMX Baltic Benchmark index also fell by 3% over the month.

During the month, we increased existing positions and added new ones to our portfolios. Among the existing positions, we expanded our holdings in Epiroc, Atlas Copco, Glencore, a gold miners ETF, and a US industrial companies ETF. New investments added to the portfolios included the Latin American company Mercado Libre, Emcor Group, Investor AB, energy company EQT Corp, and a US infrastructure development ETF. In November, the strongest contributors to returns were our energy-related positions, which rose by 5% to 27%, and the US industrial companies ETF, which delivered approximately 11% returns in XL and 12.75% in A3. On the other hand, the most negative impacts came from one of our gold positions, which fell by approximately 9%, the European banks index, which declined by around 3.2%, and our energy metals position, which dropped by approximately 6.3%. We continue to see good opportunities in the commodity sector, given the protection it provides in a challenging geopolitical environment, as well as in Scandinavian companies due to their high quality and strong competitiveness. We have also increased our exposure to US stocks in recent months and intend to increase this exposure in the future.

In November, EfTEN Real Estate Fund 5, in partnership with six Estonian entrepreneurs, announced the acquisition of Tallinn’s Kristiine shopping centre, valued at €123.5 million. This marks the fund’s final investment. The centre spans 61,600 sq. m and houses 120 tenants, with the largest being Prisma and Apollo. The acquisition is financed through a combination of equity and a syndicated loan from SEB and Swedbank.

Last month, we expanded our direct investment portfolio by entering into a loan agreement with Eastnine, a real estate company primarily focused on the Lithuanian and Polish markets. The loan has a three-year term, and the pension fund earns an annual interest rate of 8.5%. At the same time, Eastnine also raised new equity and secured bank loans, continuing its growth plans in the Polish commercial real estate market. Having previously held investments in Estonia, the company has now set its sights mainly on the Polish market, where assets now make up the majority of its portfolio following this major transaction.

October 2024: Gold drives positive returns in the stock portfolio

Kristo Oidermaa and Romet Enok, Fund Managers

The US S&P 500 index ended October with a return of −1% in dollar terms, while the European Euro Stoxx 50 index posted −3.3% in euro terms. The emerging markets index declined by 4.4% in dollar terms over the month, driven primarily by China, where the index fell by 6% in dollars. The wave of optimism that emerged in China in September has somewhat diminished. Meanwhile, the OMX Baltic Benchmark index rose by 3.5% over the month.

In October, we added the Finnish energy company Fortum to our funds, reduced our gold holdings and sold off the Finnish retail company Kesko from L and Active III. The top performers in the stock portfolio were our gold-related positions, which gained between 4.5% and 7.5%, and our European banking index fund, which increased by 3.5% in October. On the downside, our investments in energy metals dropped by 7% to 9% and our Chinese position in Alibaba declined by around 12%.
We continue to see good opportunities in the commodity sector, given the protection it provides in a challenging geopolitical environment, as well as in Scandinavian companies due to their high quality and strong competitiveness. We have also increased our exposure to US stocks in recent months and intend to increase this exposure in the future.

October was a particularly active month for the EfTEN Real Estate Fund, which acquired a logistics centre and signed a contract to purchase a production and storage facility. The logistics centre in Tallinn has ELP Logistics OÜ as the anchor tenant, with a lease commitment extending for at least ten years. The production and storage facility under development in Harku municipality is being built for ICONFIT, the Baltic region’s leading producer of sports, diet and health foods. ICONFIT has also signed a long-term lease agreement with the fund, with a term of ten years.

The most significant change in the bond portfolio was the liquidation of our position in Volkswagen securities. This instrument, slightly more complex than standard bonds, had been in our fund for nearly a year and a half and provided returns more in line with the long-term average of stock markets. For new investments, we are currently looking outside the global exchanges and our next addition is likely to be a direct investment.

September 2024: The largest indices ended the month positively

Kristo Oidermaa and Romet Enok, Fund Managers

The beginning of September was quite volatile, just as the beginning of August was; nonetheless, the major indices ended the month positively. The US S&P 500 index was up 2% in dollars and the European Euro Stoxx 50 rose 0.9% in euros. The emerging markets index was up as much as 6.4% in dollars during September. This was mainly due to China, whose index gained 23.5% in dollars as the market responded to the country’s long-awaited major government spending aimed at stimulating the economy. The Baltic OMX Baltic Benchmark index saw little change, ending the month down 0.8%.

After a six-year investment, the Livonia fund sold its stake in the Lithuanian company Freor to the company’s management. Freor manufactures top-quality refrigeration equipment to help food retailers reduce environmental impact and energy consumption. The company was founded in 2000 and, since then, it has managed to expand operations to 55 countries.

In September, we sold five investments from the stock portfolio: Siemens Healthineers, Roche Holding, GN Store Nord, Huhtamäki and Valmet. We also halved our position in Agnico Eagle Mines; however, we increased our energy position by buying more in Noble Corp and Valaris.

During the month, our energy metal positions, physical gold and Alibaba delivered the best results, reflecting more positive sentiments in the market due to the announcement that the Chinese government would increase its support to its economy. Investments in the energy sector and gold mining enterprise Barrick Gold Corp. were the biggest drags on the fund’s results in September. We still see good opportunities in the commodity sector thanks to the protection the sector offers to the investor in a difficult geopolitical environment, as well as in Nordic companies thanks to their guaranteed quality and competitiveness.

One of the more significant direct investments in the fund’s bond portfolio came to an end when Sunly repaid its bonds. Sunly raised 13 million euros from LHV funds for renewable energy investments in 2020. In the time since, Sunly has grown so fast that its equity went up from 13 million euros four years ago to nearly 300 million euros by the end of 2023. Our bond investment yielded around 9% per annum during this period.

We continue to look for new local projects where LHV pension funds can participate in similar developmental leaps.

August 2024: August brought good buying opportunities

Kristo Oidermaa and Romet Enok, Fund Managers

August was quite volatile for the markets. After falling earlier in the month, the S&P 500 index recovered to end the month up 2.3% in dollars. The European Euro Stoxx 50 ended August up 1.8% in euros. The emerging market index rose 1.4% in dollars during the month, with China, the biggest contributor to that rise, up 1%. The OMX Baltic Benchmark index fell by approximately 2.7% in euros during the month.

The market correction at the beginning of the month brought us good buying opportunities. Among the new investments added to the portfolio were the Swedish companies Atlas Copco, Saab, Indutrade and Nibe Industrier. We also bought positions in United Rentals, an American construction equipment rental company, and in American Industrial Renaissance ETF. In addition, we increased our holdings in the Finnish company Metso and in VanEck Oil Services ETF.

The biggest contributors to the fund’s equity portfolio last month were gold positions, which rose 4%–8%, the European banks index, which rose 3.4%, and the air source heat pump manufacturer Nibe Industrier, which rose about 19%. The poorest performers were investments related to energy and silver, which fell by 15%–20% and 11%, respectively. Due to structural undersupply and the protection it offers in an uncertain geopolitical environment, we continue to see good opportunities in the commodity sector.

In August, LHV pension funds sold a stake in the forest fund Birdeye Timber Fund 1 for 8.4 million euros. The duration of the investment was ten years, during which period we contributed to the development of Estonian forests and the management of the forest portfolio. Forest land as an asset class is based on real property and is less volatile than traditional investments such as stocks and bonds.

Our major investment this summer – Eesti Energia subordinated bonds – has started with strong results, bringing the fund a return of approximately 3% by the end of August. A significant part of the return was due to the overall decline in interest rates in Europe (reminder: after interest rates are lowered, the prices of most bonds rise automatically). If the company’s results improve, the price of the bonds could increase further. To top it off, the fund accumulates interest at the rate of 7.875% per year in the meantime.

July 2024: We made a new major investment

Kristo Oidermaa and Romet Enok, Fund Managers

July was a rather volatile month on the stock markets. While the S&P 500 index, which largely represents technology stocks, dipped during the month and ended with a 1.1% return in dollar terms, the Dow Jones index, which reflects more established industrial-sector companies, performed much better, with a monthly return of 4.4%.

The Euro Stoxx 50 index saw little change in July, with its value decreasing by 0.3% in euro terms. The emerging markets index also remained largely unchanged. The index was negatively impacted by China, which declined by 2.2% in dollar terms, but positively influenced by India and Indonesia, which rose by 3.9% and 3.5%, respectively. The OMX Baltic Benchmark index increased by approximately 1% in euro terms over the month.

In July, the largest private-equity fund in the Baltics, BaltCap, announced that it had acquired the business software platforms FitekIN and ONEA from the Belgian technology firm Unifiedpost Group. FitekIN has previously been owned by BaltCap, so the fund is already well-acquainted with the company. FitekIN and ONEA provide businesses with automation and digitisation solutions for invoice management and approval. Both platforms operate in 13 countries across Europe, with plans to expand into additional markets in the future.

We didn’t execute any major transactions in the stock portfolio during the month. The positions related to precious metals contributed the most to our returns, appreciating by 2.5% to 18%. In contrast, our investments in metals used in energy production and storage had the most negative impact on July’s returns, declining by 4% to 6%. Additionally, one of our positions in the timber industry lost approximately 10% of its value due to quarterly results that fell short of investor expectations.

Thanks to structural undersupply and the resilience that the commodities sector offers in the current uncertain geopolitical environment, we continue to see strong opportunities in this sector.

The bond portfolio has a new major investment as we subscribed to Eesti Energia’s new bonds. These bonds offer an annual interest rate of 7.875%, and Eesti Energia is expected to repay the loan in approximately five years. In addition to bank loans, the energy provider raised funds through bonds to complete its extensive investment plan. Capital-intensive construction projects are underway in the renewable energy, network services and fuel business sectors. The bond is traded on the international market, providing an additional opportunity to profit from potential price increases.

On the other hand, funds were released from the bond portfolio when the local real estate fund Baltic Horizon made the final repayment on the shorter-term portion of its bond. In addition to the nearly 12% annual interest rate, early redemption fees were added to the shorter-term repayments.