Nordea 1 - Stable Return E EUR

Analyst Report
Morningstar's Take
|29/04/2024

by Matias Möttölä
We continue to appreciate the disciplined approach to asset allocation and the experienced team behind Nordea 1 – Stable Return.

Continuity is the watchword here. The strategy has been managed since its launch in 2005 by Asbjorn Trolle Hansen, Claus Vorm, and Kurt Kongsted. The trio belongs to the 42-strong multi-asset team, which has seen very little turnover under Hansen’s long watch. For this strategy, the team has developed a distinctive, quantitatively based approach to asset allocation that has been applied consistently. The focus is on risk control as the fund aims to maximize returns while avoiding any losses of capital over a three-year horizon. To achieve its dual goals, the team has identified several clusters of securities both for recovery and recession periods, such as stable equities, government bonds, currency pairs, and covered bonds and credits. In addition, the managers use derivatives, mostly to limit market risk. These instruments are then combined and optimized monthly. The managers have the option for some tactical positioning but have not used this sleeve since late 2022 when the sudden rise in bond yields reduced the effectiveness of their tactical models.

As of end-March 2024, most of the fund’s risk-on positions were in developed-markets equity, while on the defensive side the fund trusted a mix of stable stock premiums, bond duration, and currency bets. The fund tends to have less risk than its average EUR moderate allocation global Morningstar Category peer, and this shines through, particularly in difficult periods for markets such as 2022 when the BI EUR share class ended in the top decile of its category. The share class has also been able to stay in the black for all but two three-year rolling periods since inception. In contrast, strong stock markets have recently been challenging for the strategy to keep up with, as their stable stocks have tended to lag the growth-stock-driven market. This was the case again in 2023 when the strategy fell into the bottom return decile of its category as the “Magnificent Seven” stocks led the market rally. As a result, the BI EUR share class of the Luxembourg-domiciled fund currently falls into the third quintile of its category in terms of Morningstar Risk-Adjusted Returns for the trailing 10 years through end-March 2024. But it’s still pleasing to see that since inception the fund’s upside-capture ratio of 65.2% (with respect to the category index) remains higher than the downside-capture ratio of 62.2%.
 
Morningstar Medalist Rating™Downside protection is the main draw here.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAbove Average
ParentAverage
ProcessAbove Average
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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