Monthly Report August 2022

Performance

Adrigo Small & Midcap L/S Class A rose 0.85% and Class C rose 0.72% in August net of fees. As of August, Class A is up 2.23% in 2022.

Global stock markets held up well during the first half of August but fell sharply during the latter part of the month. The S&P 500 fell almost 8% in the last two weeks and the Nordic stock markets showed a similar decline. The fund's holdings in Frontline (shipping) and K2A (real estate) provided good contributions to our return. The fund's Core holdings collectively showed a relative outperformance compared to the stock market. A number of our short holdings, including our short index position, also made good contributions.

Adrigo Small & Midcap L/S Class A has returned 83.3% since inception, net of fees. In the same period, the benchmark STIBOR 1M rate has returned -0.7% and the Carnegie Small Cap Return Index Nordic has a gain of 60.6%.

Market comment & the companies

Carnegie Small Cap Return Index Nordic fell 5.93% in August. We noted that Nordic small-caps “outperformed” its large-cap peers (OMXN40), which fell 6.24%.

The early summer's downturn in the interest rate market, pivoted in August with interest rates turning upwards again. In the US, the ten-year interest rate went from 2.55% to 3.20% after FED chairman Jerome Powell pointed out that the fight against inflation has the highest priority, even if higher interest rates will put pressure on the economy. It should be quite clear that the American labor market needs to cool off and we will see a continued strong focus on employment statistics during the autumn.

We saw strong movements in some of our holdings in connection with the quarterly reports. Calliditas Therapeutics (pharma), a midsized holding, was down sharply after its earnings report, despite the fact that reported sales did not deviate from expectations. The Company's product, Tarpeyo, for the treatment of IgAN, a rare kidney disease, is approved by the FDA and it went on sale during Q1 2022. The product has also received approval in Europe, under the product name Kinpeygo. The FDA's approval was based on the reading of Part A of the Phase 3 study. Part B is a post-market approval confirmatory trial, to confirm long-term renal protection. The readout will come in the first half of 2023, and a positive result will have a marked effect on the stock market's risk premium and thus the share price.

Russia's invasion of Ukraine continues to have a big impact on the energy markets. Extremely high gas prices have been noted but, we also see other major effects. Russia's oil production remains high, but new trade patterns have crystallized. In previous monthly newsletters, we have stated our thesis about longer transport distances (which we now see); partly through increased exports from the USA and partly through more complicated, and less efficient, transport routes. Our position in Frontline has continued to develop well and a distinctly optimistic management spoke after its Q2 report. What makes the market extra interesting is a low supply of new builds entering the market in the coming years, while a major part of the large tanker fleet is approaching 20 years old. We therefore see that the market will strengthen further in the coming years. Frontline has a very modern fleet, and we expect very strong cash flows going forward.

We thank you for your trust and see good return opportunities in the future.