New Swedish Fund to Exploit Swings in Investment-Firm Valuations

(Bloomberg) -- A robot in Sweden will set out to make money on the discount investment firms often trade at compared with the total value of their assets.

Kvartil, an asset manager based in Stockholm, has created the Investmentbolag+Calculus fund, which will use machine learning tools to try to generate a combination of greater returns and lower risk than an index consisting of listed investment companies such as Investor AB, Kinnevik AB, Lundbergforetagen AB and Industrivarden AB.

The trick is to capture opportunities that arise due to changes in the difference between such firms’ market capitalization and the net asset value of their holdings, Kvartil Chief Executive Officer Torbjorn Olofsson said in an interview.

“This discount varies much over time and is a risk to any investor in investment companies,” Olofsson said. “We have created rule-based strategies that aim to exploit this variation in order to generate alpha.”

Since the discount can be observed, it offers a more or less objective measure of which investment companies are cheap and which ones are expensive, compared with alternative investment, Olofsson said. That makes investment companies unique from an analytical point of view, he said.

Kvartil estimates that the new fund’s model can generate about 2% annually in excess returns compared with a more traditional portfolio of investment companies. It generated an annualized return of 19.1% at 19.5% volatility over the period 2003-2019. Corresponding figures for an index of Swedish investment companies was 17.1% and 20.1%, respectively.

Olofsson is a Swedish veteran hedge fund manager who launched Kvartil last year based on the view that traditional actively managed funds will face increasing competition from passive and rule-based strategies. Kvartil’s first fund, called Balans, has a passive leg based on exchange-traded funds and another based on algorithms.

To contact the reporter on this story: Love Liman in Stockholm at jliman1@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Niklas Magnusson, Jonas Cho Walsgard

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