Nordea_Nordic_Friends_SG_HK_2022

More and more people want to actively contribute to making the world a more sustainable place. This also applies to their financial investments. Nordea helps them to achieve their goals

PLAYING FIRST FIDDLE Sustainable real assets are spearheading the transition towards net-zero emissions – to the benefit of the planet as well as investors / 08

PLAYING IT SAFE In light of increasing economic headwinds, investors may want to focus on quality companies that generate stable profits / 12

PLAYING AS A TEAM With the changes to MiFID II now in place, what are the challenges advisers are facing and how can Nordea AM support? / 16

For Singapore accredited investors and Hong Kong professional investors only Warning: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. nordic friends

ISSUE 02.2022

When traditional instruments no longer hit the right note, it’s time for an alternative approach: Nordea’s Multi Assets Team strikes a different chord than traditional multi-asset portfolios by relying on risk premia / 04 The alternative symphony

EDITORIAL + CONTENTS

In this edition

Dear reader,

This year has been one of the most difficult periods for investment markets and the broader economy for quite some time. After years of low interest rates, central banks have been forced to make aggressive hikes in response to record-high levels of inflation. These accelerating price pressures sent shockwaves through most asset class- es in 2022, creating a simultaneous

bear market in equities and fixed income. In fact, negative returns for both stocks and bonds in a calendar year are extremely rare, with no such occurrences witnessed over the past 50 years. Under- standably, it has been difficult for investors to know where to turn. At Nordea Asset Management (NAM), we have long discussed our concerns surrounding correlations and the limits of traditional asset class diversification. In our nordic friends cover story, Asbjørn Trolle Hansen, the head of our Multi Assets Team, details our differentiat- ed alternative risk premia approach – which has proven capable of delivering stability through times of turbulence.1 Stability has always been the cornerstone of our approach. Our Nordea 1 – Global Stable Equity Fund , under the helm of Claus Vorm and Robert Næss, provided the expected shelter this year and is well positioned for continued uncertainty.1 Indeed, as expec- tations of a global recession rise, the managers expect the market to reward companies able to consistently generate steady earnings – exactly the types of stocks targeted by our team. Despite the difficult environment, we remain committed to offering investors robust and sustainable solutions.2 For example, in collab- oration with CBRE IM, we designed a solution combining resilience to inflationary pressures with the ongoing drive for improved sustainability. In this edition, we talk to CBRE IM’s Jeremy Anagnos and Joseph Smith, portfolio managers of our recently launched Nordea 1 – Global Sustainable Listed Real Assets Fund . The Article 9 fund combines NAM’s longstanding expertise in ESG and CBRE IM’s renowned listed real assets capability. Finally, from all of us at NAM, we would like to express our gratitude for your continuing support and trust. Have a safe and enjoyable festive period, and we look forward to speaking to you again early in the new year.

Cover story

The alternative symphony New instruments are needed: using alternative risk premia, NAM’s Multi Assets Team achieves greater diversification than traditional portfolios can offer.

Fund in focus

Driving change Investments in listed real assets are the key to a more sustainable society.

Market view

Stability through the storm In times of economic headwinds, quality companies promise stability through robust profits.

Macro opinion

Help when the economy lags Offering opportunities in difficult times: taking a look at fixed-income securities, multi-asset and co.

Inside Nordea

Open door policy What the latest changes to MiFID II mean for advisers and how they can take action now.

Yours faithfully,

Lounge

Christophe Girondel Global Head of Institutional and Wholesale Distribution

On the lookout for solutions Proven sustainable Nordic point of view: Christmas in the High North

1 The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up and down, and you could lose some or all of your invested money. 2 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

ISSUE 02.2022

4 COVER STORY

Nordea’s Multi Assets Team is striking new chords: it uses new and innovative tools to compose portfolios that offer a level of diversification that traditional multi-asset approaches lack. The alternative symphony

nordic friends

COVER STORY 5

„ Historically, fixed income was the

instrument of choice to mitigate equity market downside. Now, it’s time for an alternative approach. Asbjørn Trolle Hansen Head of the Multi Assets Team at Nordea Asset Management

“Historically, fixed income was the instrument of choice to mitigate equity market downside,” Asbjørn Trolle Hansen, head of Nordea Asset Management’s (NAM) EUR 150bn Multi Assets Team, explains. “However, both asset classes sold off aggressively in tandem during the first half of 2022.” As equities endured the worst beginning to a year since the 1970s, fixed income encountered its first bear mar- ket in more than three decades. “The simultaneous collapse of equities and fixed-income securities at the beginning of the year made it painfully clear to us: traditional multi-asset portfolios are no longer able to protect investors to the extent they used to,” Trolle Hansen continues. “It is therefore time for an alternative approach.” A different kind of music NAM’s Multi Assets Team has long noted the limits of traditional asset class diversification. It has therefore chosen a different approach, seeking to compose portfolios on the basis of alternative risk premia. “In order to achieve diversification, we balance both cyclical and anti-cyclical return drivers from a broad and diversified set of 20-30 risk premia spread across strategy types and asset classes,” Trolle Hansen explains. The symphony thus created has repeatedly proved its worth to investors in difficult times – such as during the global financial crisis and the European sovereign debt crisis. Today, NAM offers clients three liquid alternative multi-asset strategies designed for

The play of the markets has not always been melodious over the past ten years. Rather, there have been phases with strong dissonances again and again, most notably the European sovereign wealth crisis, the ‘taper tantrum’ and the initial stages of the Covid-19 pandemic. Fortunately for investors, the drawdowns encountered proved to be temporary, and stocks and bonds quickly reached new heights. With numerous asset classes performing positively in unison since 2009, most multi-asset approaches – such as the traditional 60/40 portfolio – delivered on long-term investor return objectives. In addition, due to the largely sanguine environment during the 2010s, one of the primary characteristics of a multi-asset solution – portfolio diversification – was put to the test only infrequently. A thorough examination eventually appeared during the first half of 2022, when markets went into disar- ray following the central banks’ aggressive meas- ures to curb record inflation. Regrettably, traditional multi-asset portfolios proved to be flawed composi- tions in terms of diversification.

At a glance ` As central banks acted forcefully to fight accelerating inflation in early 2022, traditional multi-asset strategies struggled as equities and fixed income sold off aggressively in unison ` NAM’s Alpha MA liquid alternative multi-asset strategies are composed of a broad and diversified set of 20-30 risk premia spread across strategy types and asset classes ` While moderately impacted by the correlated movement at the beginning of 2022, the long-term return potential of the Alpha MA strategies remains intact 1

1 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

ISSUE 02.2022

6 COVER STORY

Nordea’s Multi Assets Team consists of seasoned professionals with an average experience of over 15 years. Together, they bring to life an alternative symphony that fits today’s challenging environment.

different risk/return profiles: the Nordea 1 – Alpha 7 MA Fund, the Nordea 1 – Alpha 10 MA Fund and the Nordea 1 – Alpha 15 MA Fund . Despite having proven their qualities time and again, the anti-cyclical return drivers of NAM’s Alpha MA strategies were unable to fully protect against down- side during the rapid market deterioration of early 2022. However, each Alpha MA strategy was still able to clearly outperform traditional asset classes of a similar risk profile.2 “The beginning of 2022 was ruthless for financial markets, as accelerating infla- tion and its consequences – from interest rate hikes to increased recession risks – triggered an undiffer- entiated sell-off for all asset classes,” Trolle Hansen says. “While our drawdowns compared favourably relative to strategies of similar expected returns and risk levels, periods of negative absolute returns are never pleasing.” The swift and severe nature of the 2022 market dis- location echoed the ‘taper tantrum’ of 2013 – when talk of a Federal Reserve QE tapering triggered a 130 basis points spike in US treasury yields, as well as an 8% decline for US equity markets. However, the neg-

In the spotlight: the Nordea 1 – Alpha 15 MA Fund

Since the beginning of the year, the Nordea 1 – Alpha 15 MA Fund has been the recipient of no fewer than three prestigious awards. At the UCITS Hedge Awards, hosted by The Hedge Fund Journal, the fund was named “Best Performing Fund” in the Alternative Risk Premia category over 3, 4, 5, 7 and 10 years . In addition, at the Camradata Awards , the Alpha 15 MA Composite USD Fund came first in the “Global Multi Asset (USD)” category. Last but not least, the fund won the title of “Best Liq- uid Alternative Multi Asset Fund” twice at the Italian Mondo Alternative Awards : for the year 2021 and for the 3-year period from 2019 to 2021.

2 The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount in- vested. The value of your investment can go up and down, and you could lose some or all of your invested money.

nordic friends

COVER STORY 7

„ In order to achieve diversification, we balance return drivers from a broad and diversified set of 20-30 risk premia. Asbjørn Trolle Hansen Head of the Multi Assets Team at Nordea Asset Management

respectively. This has now increased to 6.1% and 1.2% per annum. 3

Trolle Hansen is particularly optimistic regarding the exposure to Stable/Low Risk Equities, which have demonstrated an ability to perform through periods of heightened volatility – as well as periods of elevated inflation. “Equities offer the highest re- turn potential within a multi-asset strategy, but the asset class is also the greatest source of risk. There- fore, when we are composing our low-risk anomaly portfolio, we are seeking to identify companies displaying a greater degree of solidity in stock price, earnings, dividends, EBITDA and cash flow than the broader market,” Trolle Hansen explains. He is convinced that stable, high-quality and attractively valued companies, which historically offer more resilient earnings, are in a far better position to per- form well in this increasingly challenging economic setting. In addition, the team looks for compa- nies that exhibit pricing power and thus have the ability to pass on inflation price increases. This is a valuable characteristic in the current environment. “Finally, Stable/Low Risk Equities continue to offer a 1.5% earnings yield premium versus the broader market. This is an incredibly attractive building block for our portfolios in the months and years to come,” Trolle Hansen concludes. 

ative impact was far greater in 2022, with treasury yields jumping 250bp and US stocks slumping 25%. While the magnitude of the market’s losses was far greater during this period, the constant refinement of the Multi Assets Team’s proprietary defensive alter- native risk premia over recent years kept drawdowns within the Alpha MA strategies to similar levels as the taper tantrum. The stage is set for the coming performance As central banks continue to raise interest rates to bring down inflation, sudden and abrupt discord in the markets will be recurrent for the foreseeable future – particularly as the war in Ukraine rages on. Despite these challenges, Trolle Hansen remains con- fident of the near and longer-term prospects of the Alpha MA portfolios. “The severe sell-off was largely a re-pricing of assets as a result of anticipated higher interest rates to control inflation,” Trolle Hansen says. “This has not significantly compromised earnings, balance sheets or default rates.” As a result, NAM’s Multi Assets Team is more enthusiastic about poten- tial investor returns. At the beginning of 2022, 10-year expected returns for equity beta and duration risk premia were 4.5% and 0.3% above cash per annum,

Nordea 1 – Alpha 7 MA Fund Base currency EUR

Launch date 23.05.2018 23.05.2018

ISIN LU1807426207 LU1807426629

Share class BP-EUR BI-EUR

Nordea 1 – Alpha 10 MA Fund Base currency EUR Share class BP-EUR BI-EUR Nordea 1 – Alpha 15 MA Fund Base currency EUR Share class BP-EUR BI-EUR

Launch date 30.09.2009 30.09.2009

ISIN LU0445386369 LU0445386955

Launch date 11.08.2011 15.06.2011

ISIN LU0607983896 LU0607983383

3 The presented figures are estimations of Nordea Investment Management AB Multi Assets Team and are based on assumptions and on information currently available. No guarantee can be given for the accuracy of the data and these estimations might not be met in the future.

ISSUE 02.2022

8 FUND IN FOCUS

Driving change The Nordea 1 – Global Sustainable Listed Real Assets Fund seeks to accelerate the necessary transition towards a more sustainable society by investing in leaders at the forefront of net-zero action.

A combination of competencies This innovative vehicle is a co-creation between NAM and CBRE Investment Management (CBRE IM). It combines NAM’s longstanding expertise in environmental, social and governance (ESG) investing and CBRE IM’s renowned listed real assets capa- bility. CBRE IM will be recognised by most readers of nordic friends , as the group has been managing the Nordea 1 – Global Listed Infrastructure Fund since 2019. NAM’s Responsible Investments (RI) Team is one of the largest in Europe in terms of pure ESG analysts, with the group’s ESG STARS range of ESG-aligned equity and bond strategies recognised as leaders in the responsible investment space. As for CBRE IM, it is a prominent global real assets investment manager with a track record in real estate dating back to 1984, and infrastructure since 2012. This combination of competencies has enabled NAM to develop a sustainable Article 9-compliant fund in listed real assets. CBRE IM’s Jeremy Anagnos, the lead portfolio manager of NAM’s Global Listed

The events of 2022 have clearly shown that change is necessary. While the escalating climate crisis continues to affect people’s daily lives, the world experienced another shock earlier this year with Russia’s invasion of Ukraine, which pushed already elevated inflation levels to a record high. With the global economy at an inflection point, new approaches to reduce fossil fuel reliance and decrease energy use are urgently required. In addition to accelerating the shift towards renewable and alternative power generation, the world needs to become more energy-efficient. At the same time, society’s awareness of sustainability is growing and its needs are changing. Identifying sustainable leaders within the real assets space – encompassing both infrastructure and real estate – will be imperative for pushing forward the needed change. This is why Nordea Asset Management (NAM) recently added the Nordea 1 – Global Sustainable Listed Real Assets Fund to its suite of thematic ESG solutions.

nordic friends

FUND IN FOCUS 9

„ Real assets offer the opportunity to drive real change as they literally underpin society’s basic needs. Jeremy Anagnos portfolio manager at CBRE Investment Management

Infrastructure strategy, is spearheading the new vehicle, alongside his colleague Joseph Smith. “ESG integration is crucial – given the unique nature of real assets. We strongly believe management teams that are mindful of the needs of all stakeholders and who can articulate, measure and tackle ESG issues are more likely to make superior business decisions and deliver enhanced long-term value,” says Anagnos. The partnership between CBRE IM and NAM’s RI Team made this new sustainable real assets reality possible. Real assets to drive real change “Real assets offer the opportunity to drive real change, since they literally underpin society’s basic needs: from housing to transport to utilities to tele- coms infrastructure,” Anagnos points out. At the same time, these assets have the potential to spearhead environmental change. “While industries within the infrastructure and real estate spaces are responsible for half of all carbon emissions today, these sectors also make up almost three-quarters of current capital spent towards global low-carbon initiatives,” the portfolio manager explains. “Sustainable real assets companies are at the forefront of net-zero action by investing in green initiatives such as the installation of solar farms, by upgrading transmission lines and improving building energy efficiency.” In addition to being bullish on the merits of a sustainable real assets strategy over the long term, Anagnos and Smith believe the underlying universe of companies targeted by this strategy also provides investors with a solution to address many of today’s acute shorter- term challenges, especially inflationary pressures.

At a glance

` The recently launched Article 9 vehicle combines NAM’s longstanding expertise in ESG and CBRE IM’s renowned listed real assets capability ` In addition to contributing to the long-term fight against climate change, the strategy aims to provide a solution to today’s acute shorter-term challenges – namely the energy crisis and associated inflationary pressures 1 ` The sustainable real assets opportunity set is enormous, with upwards of USD 130trn expected to be spent over the next three decades to ensure infrastructure and real estate assets meet the evolving needs of society

Real assets as a solution for investors, too Besides the well-known ability of real assets to

ISSUE 02.2022

10 FUND IN FOCUS

„ Sustainable real assets companies are at the forefront of net-zero action by investing in green initiatives. Jeremy Anagnos, portfolio manager at CBRE Investment Management

assets’ cashflows and asset values frequently have direct or indirect links to inflation. In both cases, the rising cash flows provide an element of much-need- ed inflation protection for investors. This has enabled listed real assets to outperform global equities during historical periods of above-average inflation 2 . The USD 130trn investment opportunity The Nordea 1 – Global Sustainable Listed Real Assets Fund is a global portfolio of sustainable champions evenly allocated between listed real estate and infrastructure. It is broadly diversified across the main sectors of both asset classes and aims to generate an attractive total return through both capital appreciation and income. 3 In terms of the investment opportunity set, upwards of

deliver a meaningful impact in accelerating the energy transition and improving energy efficiency, their key characteristics make them particularly interesting for investors right now. “Underpinned by essential needs – such as housing, power, transport and communications – real assets provide resilient income streams,” explains Smith. “They frequently exhibit contracted or regulated returns, which pro- vide a strong foundation of stability during economic stress.” Furthermore, the vast majority of real assets have the ability to pass on inflation increases – a fac- tor that is increasingly attractive as inflation around the world reaches worrying levels. Within the real es- tate universe, property values and rents tend to rise with the overall price environment due to rising costs of labour, land and materials, while infrastructure

2 Source: CBRE Investment Management, U.S. CPI, UBS Global Infrastructure & Utilities linked to FTSE Glob- al Core Infrastructure 50/50 Index, FTSE EPRA Nareit Developed Index, MSCI World Index as of 30.06.2022. Trailing 20-years based on average monthly total returns during inflation regimes, annualised. Inflation regimes calculated using the year-on-year change in the U.S. CPI, normalising its history using a z-score, and tracking the three-month moving average of that z-score. The inflation regime is determined by both the level and the change in the indicator, requiring two months in the same cycle in order to confirm a new regime. The perfor- mance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up and down, and you could lose some or all of your invested money. 3 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

nordic friends

FUND IN FOCUS 11

USD 130trn is expected to be spent over the next three decades to ensure infrastructure and real estate assets meet the evolving needs of society. The CBRE IM team is already witnessing a multitude of compelling corporate opportunities, tied to the themes of environmental and social stewardship, and technological evolution. Over the next two decades, USD 65trn is set to be allocated to support- ing environmental stewardship, as the demands of a growing population put enormous pressure on global resources. National Grid, the owner of critical UK electricity transmission networks, is a good exam- ple of a company at the forefront of environmental stewardship. Between 2022 and 2026, National Grid is set to undertake capital expenditure of GBP 30-35bn to ensure the UK is able to meet its net-zero targets. Within social stewardship, infrastructure and housing developments have clearly not kept pace with recent demographic and societal change in many parts of the world, and major investment is needed to ensure these assets are future-proof. Ventas, the diversified healthcare REIT with 1,200 properties across the US, Canada and the UK, is a key beneficiary of secular trends, including senior housing demographics and accelerating demand from the medical office and life science markets. As for leaders within technological transformation, Portuguese electric utilities group EDP is a shining light in decarbonisation innovation. It is one of the world’s largest renewable energy de- velopers, generating 24.7GW per year, which services nine million customers. EDP aims to abandon all coal production by 2025 and operate with 100% renewa- ble capacity by the end of the decade. Making it real “Real assets offer a historic track record of resilient returns and the ability to invest in society’s sustain- able future,” says Anagnos. As the world is facing challenges on multiple fronts – high inflation, an energy crisis and potentially the tipping point for climate change – sustainable listed real assets may offer the solution for investors’ portfolios, so- ciety and the planet. Nordea’s Global Sustainable Listed Real Assets strategy is built to address all of these. 

Transport, housing, telecommunications, utilities – real assets play a major role in our daily lives, and also in the transition towards a more sustainable way of living.

Nordea 1 – Global Sustainable Listed Real Assets Fund

Jeremy Anagnos

Manager

USD

Base currency

LU2500361329 (BP-USD) LU2500361675 (BI-USD)

ISIN

17.08.2022 (BP-USD, BI-USD)

Launch date

ISSUE 02.2022

12 MARKET VIEW

Stability through the storm

The Nordea 1 – Global Stable Equity Fund has successfully navigated through many market turbulences. 1 The key to its success: investing in quality companies able to generate steady earnings.

The decade following the global financial crisis proved to be one of the most fruitful periods in history for equity markets , as un- precedented monetary stimulus and ultra-low interest rates powered stock prices – particularly growth-related names. However, this largely se- rene investment environment has since given way to elevated economic uncertainty and increasing market volatility. As 2022 comes to a close, the primary challenge facing investors continues to be historically high inflationary pressures, which are forcing many central banks to aggressively hike interest rates – potentially creating the storm of a global recession. Taking a fundamental perspective As heightened fear and pessimism in the mar- ket persists, equity investors are understandably uncertain of where to turn. “Investors need to meet fundamental challenges with fundamental investing,” Claus Vorm and Robert Næss, portfolio managers of the Nordea 1 – Global Stable Equity Fund , explain. Vorm and Næss are members of Nordea Asset Management’s (NAM) renowned

USD 150bn Multi Assets Team, which is headed up by Asbjørn Trolle Hansen. Vorm continues: “If we look at markets through a fundamental lens, equi- ties remain the asset class most likely to deliver a robust return able to offset inflation. However, risks in the market have clearly risen, so it is vital to be selective of the stocks you invest in.” Vorm and Næss, who have been managing NAM’s Global Stable Equity strategy for more than 17 years, do not expect all companies to be able to considerably grow in the face of the numerous pressures evident today – namely elevated infla- tion, rising interest rates and broader economic weakness. This is why the duo targets companies with steady earnings, free cash flows, EBITDAs, dividends, etc. and robust balance sheets, which can act as a stabiliser and provide elements of protection against economic downturns and rising rates. Stability has not been the most in-demand equity quality over the past decade or more, as investors gravitated towards stocks exhibiting outsized growth

nordic friends

MARKET VIEW 13

Still on course: despite a challenging market environment, the Nordea 1 – Global Stable Equity Fund has been able to live up to its name, providing investors with stability. „

We are focusing on companies that are less economically sensitive than the broader market. Claus Vorm portfolio manager at Nordea Asset Management

potential. But in this new investment paradigm, Vorm and Næss expect the market to reward quality com- panies able to deliver steady earnings. A combination of stabilising qualities “For the Nordea 1 – Global Stable Equity Fund , we are focusing on companies that are far less econom- ically sensitive than the broader market, as these businesses produce products or offer services largely essential to everyday consumption,” says Claus Vorm. This “staple” universe is quite vast,from basic foods and personal care items, through to the provision of utilities and many IT goods and services. While such companies largely enjoy consistent demand throughout an economic cycle, for Vorm and Næss, this characteristic alone is not enough. “It is crucial to identify companies able to comple- ment steady demand with reasonable valuations and high pricing power. This last part is particularly important in an inflationary environment, such as the one we are currently witnessing, as companies with pricing power are naturally in a far better position to continue delivering earnings growth by passing on cost increases,” Vorm says. “In addition to this, we are also targeting companies with strong balance sheets, which would consequently be less sensitive to higher increasing debt servicing costs in an environment where interest rates increase rapidly.”

At a glance ` Claus Vorm and Robert Næss, portfolio managers of the Nordea 1 – Global Stable Equity Fund , believe it is imperative to be selective during this challenging economic environment ` The quality companies in NAM’s stable universe are typically less economically sensitive than the broader market, as their products or services are essential to everyday life ` In this period of heightened inflationary pressures, companies with pricing power are naturally in a far better position to achieve growth

ISSUE 02.2022

14 MARKET VIEW

Stable equities offer investors the security and stability to weather any storm.

“Alphabet has enjoyed strong earnings growth for more than a decade – driven by its leading positions in Google Search, Maps, mobile operating systems, consumer content and advertising,” Vorm says. The two portfolio managers are convinced that the company’s sales are not overly economically sensitive – with secular growth being driven by continued mobile and video usage, Google Play activity and the expansion of the connected device. “As you can imagine, brands such as Google Search, the Android operating system and YouTube also enjoy strong pricing power,” says Vorm. “With strong expense dis- cipline, Alphabet’s sales growth translates into earn- ings growth – while its balance sheet is robust, with no debt and a highreturn on capital. As for its valu- ation, Alphabet is attractive in both absolute terms and relative to the market, especially considering its consistent earnings growth and strong balance sheet. While the company has not been immune to the pressures faced by the wider tech sector in 2022, its long-term potential has not diminished.” A new dawn for equities For the first time in almost 15 years, equity markets can no longer rely on the tailwinds of historically low interest rates and unprecedented monetary support. While most investors will still seek an exposure to equity markets, it is understandable if there is an increased desire to reduce risk. “The economic back- drop is undeniably cloudier than the environment we have been accustomed to over the past decade or more,” says Vorm. “If we are to encounter a period of elevated turbulence, we are convinced the market will increasingly appreciate stable business models, due to the strong capital preservation characteristics. In addition, our stable universe is in a better position to withstand today’s historic inflationary pressures, especially in the face of expected prolonged eco nomic weakness.” 

Once Vorm and Næss have identified an appealing opportunity, there is one final piece of the puzzle: valuation. “Valuation has a key role in our portfolio construction process – as a stable company is not automatically a stable share,” Næss expresses. “Our stable companies need to be trading on fundamental- ly attractive valuations, as the market environment in 2022 has clearly displayed how much added volatility is associated with stocks at elevated prices. By avoi- ding companies with unrealistic valuations and focus- ing on high-quality companies that are typically fly- ing under the radar, our portfolio has proven to be better placed to withstand sentiment-driven market turbulence.” 2 Exhibit A for Alphabet At company level, even though the technology sector has typically been associated with the more turbulent high-growth segment of the market, Vorm and Næss have identified a number of resilient leaders within the space. For example, the duo is optimistic on the long-term prospects of Alphabet, the owner of Google.

Nordea 1 – Global Stable Equity Fund

Claus Vorm and Robert Næss

Manager

EUR

Base currency

LU0112467450 (BP-EUR) LU0097890064 (BI-EUR)

ISIN

02.01.2006 (BP-EUR, BI-EUR)

Launch date

nordic friends

MARKET VIEW 15

MACRO OPINION

Laurent Gorgemans , CFA, Global Head of Investment Products at Nordea Asset Management:

Help when the economy lags

A slowing economy naturally has downside effects on financial markets. However, it also offers investment opportunities: from more attractively valued fixed income sub segments to cheaper companies with robust cash flows.

As the global economy slows, central banks are tightening the reigns on monetary policy again. As a result, inflation should start slowly ebbing away. We are starting to see the first signs of this in the US. Base effects, the impact of Fed and ECB policies and the expectation of lower oil prices should reinforce this in the coming months. The European economy is likely to slow down signif- icantly: from 3.1% this year to -0.1% next year, accord- ing to consensus expectations. A shallow recession suggests a still decently robust labour market. In addition, energy prices should eventually stabilise at lower levels bringing some relief, though supply re- mains tight. Over a couple of quarters, we should see the economy recover, supported by lower inflation and an overall solid consumer balance sheet. The US economy is decelerating: beyond the in- flation shock for low-income consumers, the losses in the financial and real estate markets are further worrying middle-income households. This is leading the market to expect a Fed pivot, i.e. a reversal in the Fed’s monetary policy with interest rate cuts at a moderate pace. Such speculation is likely to intensify in the coming weeks, which supports both US fixed income and equities. The same can ultimately be expected for Europe. What are the solutions for investors? 1. Not-to-expensive equities with robust cash flows are a good choice, as are covered bonds with increasingly longer maturities. They provide a tran- sition to an eventually broader investment universe. 2. Multi-asset solutions that are less correlated to major asset classes are also a sensible option. 3. In fixed income, it could take a few more weeks for risk appetite to rise again. Investors will first turn to long-dated sovereign bonds as a Fed pivot is anticipated, then to credit, as the bottom of the economic slowdown is priced in with its resulting default rate. 

The horses are saddled: in view of the weak economy, investors should not hang their heads. Central banks could soon change direction, first in the US.

US house prices fall, rents likely to follow suit

22.5 20.0 17.5 15.0 12.5 10.0 7.5 in%

5.0 2.5 0.0

2000

2021

2022

S&P CoreLogic Case-Shiller US National Home Price NSA Index, YOY US Consumer Price Index for Urban Consumers: Owners’ Equivalent Rent of Residences, NSA, YOY Fed target inflation rate

Source: Nordea Investment Funds S.A. and Macrobond Date: 30.09.2022

ISSUE 01.2019 ISSUE 02.2022

16 INSIDE NORDEA

Open door policy With the changes to MiFID II now in force, Paul Malpas, NAM’s ESG Distribution Lead , discusses the key elements of the recent regulatory change and the opportunities it opens up for advisers.

ments Directive (MiFID) II, delivered a major change for advisers: the need to incorporate sustainability preferences in the overall client suitability assessment.

Paul, can you give us a brief recap of the recent actions taken by the EU in relation to sustaina- ble investing? Sure. Put simply, the EU has introduced regula- tion that influences each link of the investment value chain. Firstly, under the EU Taxonomy classification system, the companies we invest in must report on their sustainable economic activi- ties – aligned to six environmental objectives. As for asset managers, the readers of nordic friends will be familiar with the Sustainable Finance Disclosure Regulation, or SFDR. This requires NAM and all other asset managers to disclose the sustainability of their products and processes. Under the SFDR Article classification, strategies promoting environmental or social characteristics are labelled as Article 8, while those with sustainable investments as the invest- ment objective are Article 9.

What has been one of the major impacts of the MiFID II changes?

The MiFID evolution undoubtedly heightened the complexity for advisers. For example, the ex- panded MiFID II regime goes above and beyond SFDR product categorisation. While all products labelled as Article 9 under SFDR are eligible for advisers to incorporate into sustainable portfolios under MiFID, it cannot be taken for granted that Article 8 funds automatically qualify. Under Mi- FID, there are additional criteria that managers of investment products must meet, over and above an Article 8 label. This may be why we continue to witness fund classification changes across the industry.

Do advisers still face challenges today in relation to MiFID and sustainability?

Of course. We have spoken about this previously, but advisers must pay close attention to where they set the bar in relation to the sustainability

The next major stop on the regulatory journey, the extension to the Markets in Financial Instru-

nordic friends

INSIDE NORDEA 17

products they offer. This is vital, as the focus on greenwashing is only going to intensify in the future. At NAM, we have worked tirelessly over recent years to deliver a sustainability offering that does what it says on the tin. All of our Article 8 and 9 funds – which represent 66% of our total assets under management1 – qualify as suitable for clients with sustainable preferences under MiFID eligibility requirements. However, this is not indus- try standard, and advisers must be diligent. While the asset management community in general is continuing to improve disclosure levels, the deci- sion about client suitability ultimately rests with the adviser. In terms of the solutions you just mentioned, what does NAM have to offer advisers seeking to populate their sustainable portfolios? As a leader in responsible and sustainable investing for more than three decades, we have constantly evolved our suite of specialist solutions to ensure clients can remain ahead of the regu- latory curve. When it comes to MiFID require- ments, we believe our range of ESG-aligned STARS strategies contains all the building blocks needed for distributors and advisers to construct sustainable portfolios. We launched our first ESG STARS vehicle in 2011. Today, our ESG-aligned

At a glance ` As the focus on greenwashing intensifies, advisers will need to undertake thorough due diligence in the product selection process ` As a longstanding leader in ESG, NAM’s innovative ESG STARS solutions are ideal building blocks in the construction of MiFID-compliant sustainable portfolios ` With the public now more informed and engaged on sustainability issues, advisers should expect continued strong demand for ESG-aligned investing

1 Source: Nordea Investment Management AB. Data as at 30.09.2022

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18 INSIDE NORDEA

As Paul Malpas points out, NAM is committed to provide its clients with ESG solutions and tools to help them meet the new regulatory requirements.

suite contains 15 funds across both equity and bond markets. In addition to these core building blocks, we also have a growing range of the- matic sustainable solutions, which have been designed to pave the way to a greener and more inclusive future.

sustainability, it was only a matter of time before clients came knocking to demand to invest on the right side of change. A good illustration of this can be found in a survey we conducted with 1,200 retail investors across Europe last year, where three-quarters of respond- ents believed investment decisions could make a difference in creating a more sustainable society. We expect the public’s desire for positive social and environmental impacts to drive client demand for ESG-aligned solutions for many years to come. Finally, even though the MiFID deadline is now in the rear-view mirror, what is your guidance for advisers who feel they may still not be fully up to speed? It has been challenging for advisers to navigate through the ever-evolving regulatory maze in recent years. We believe there is considerable merit in advisers continuing to deepen their knowl- edge about sustainability and sustainable prod- ucts. As a leading ESG-focused asset manager, we at NAM remain committed to ensuring that our clients can join us on the sustainability journey. We urge advisers to visit our accredited ESG learn- ing centre, where we share our experiences and provide insights from leading experts, or to get in touch with us directly. Our door is always open. For more information on the resources available to advisers in Nordea’s ESG learning centre, feel free to contact your responsible sales representative or visit nordea.lu/ESGElearning . 

Could you provide an example of a building block strategy and its sustainability credentials?

Sure. Let’s use our Nordea 1 – North American Stars Equity Fund as most investors have a core holding in the US equity market. Like all our ESG STARS funds, the Nordea 1 – North American Stars Equity Fund is a MiFID-eligible strategy that aims to beat its benchmark 2,3 , invest in assets living up to Nordea’s ESG standards and create lasting impact.

What makes you so sure of continued demand for ESG investing?

This one is quite simple: people are increasingly becoming more informed, more engaged and want change. While it was the EU authorities that put deadlines on the adviser community to retool and upskill in the areas of regulation and

2 The fund's reference index is the Russell 3000 - Net Return Index.

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INSIDE NORDEA 19

„ Our range of ESG-aligned STARS strategies contains all the building blocks needed for distributors and advisers to construct sustainable portfolios.

Point In Case: The Nordea 1 – North American Stars Equity Fund About the ESG STARS strategies Nordea’s ESG STARS funds seek to find tomorrow’s winners and pursue three key objectives:  Beat the benchmark 3  Invest in assets living up to Nordea’s ESG standards  Create lasting impact

The Nordea 1 – North American Stars Equity Fund's investment approach is founded on Nordea’s steadfast belief in ESG as a key driver of alpha generation. North America is just at the start of its ESG journey, which means the companies more advanced in the transition have a major competitive advantage. NAM’s investment experts expect ESG to be a key factor in differentiating winners from losers in the years ahead. Net-zero aligned In addition to full ESG integration within the fund’s stock selection process, our Nordea 1 – North American Stars Equity Fund – like all of NAM’s equity ESG STARS strategies – already has lower carbon emissions than its benchmark and its investment approach will continue to drive them down further. By meeting its own net-zero targets, this fund could be an interesting solution for clients who are, themselves, moving towards net zero. “We believe we must be pragmatic in order to drive change, which is why we do not simply exclude sectors like energy, the largest contributor to global greenhouse gas emissions,” says Paul Malpas. “Our Paris-Aligned Fossil Fuel list identifies companies with targets aligned to <2°C, enabling us to stay invested in and engage with companies accelerating the transition to clean energy. As a result of our process, CO 2 emissions for the Nordea 1 – North American Stars Equity Fund are 28% lower than the benchmark 4 and will continue to fall.” MiFID-eligible: sustainable investments and Principal Adverse Impacts (PAI) The Nordea 1 – North American Stars Equity Fund has committed to a minimum proportion of 50% in sustainable investments as defined by the SFDR. Through this commitment and through its consideration of PAI data, the fund is eligible to be offered to clients with sustainable preferences under the recent changes to MiFID II. 3 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money. 4 Data as of 30.06.2022. Sources: Nordea Investment Funds S.A. and MSCI. ©2022 MSCI ESG Research LLC. Reproduced by per- mission. Data based on the Weighted Average Carbon Intensity (tCO2e/USD million of sales). Benchmark used: MSCI All Country World - NR Index.

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On the lookout for solutions Uncertainty in the markets is greater than ever, and the desire for stability is growing. Nordea has the right investment ideas. nordic friends lounge 20 NORDIC FRIENDS LOUNGE

Stability is key This is what many investors crave: limited downside risk, lower market beta and lower portfolio volatility compared to the broader market, while still being able to participate in market growth. With the Nordea 1 – Global Stable Equity Fund , the name says it all: the well-diversified portfolio offers stability through stocks that provide an exposure to factors such as low-risk, value and quality. Selection criteria are robust fundamentals, attractive valuation and pricing power with low interest rate sensitivity. This combination offers special inflation protection. Over- all, the fund brings diversification and a defensive approach to the portfolio. Better prospects on the other side of the pond The world has changed in 2022 and with it the future of investing. Global trade has been disrupt- ed; Europe has been suffering from Russia’s energy supply freeze; and China no longer exports deflation via cheap labour. The results are record high inflation, unstable politics and volatile interest rates. The US economy, however, is proving robust so far. In this environment, the Nordea 1 – North American Stars Equity Fund’s strategy offers opportunistic bottom- up stock selection and outperformance potential free of style swings or adverse directional changes. 2 The

Cloudy weather, uncertain outlook – and yet, with the right strategy, opportunities can be spotted in any environment.

research focuses on finding companies with solid competitive advantages that benefit from a structural tailwind and/or that are trading at a deep discount in relation to their intrinsic value. Duration hedging makes the difference Soaring inflation has led to a sudden rise in inter- est rates. This has once again shown that a dura- tion-hedged approach makes the difference. This is why the Nordea 1 – European Covered Bond Opportunities Fund has handled the rates volatility smoothly. The flexible strategy can help to weather a period of high uncertainty. The levels of covered bond spreads, the main focus of the fund, are at the top of the range of the last ten years. 

2 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

Proven sustainable Nordea’s ESG funds were particularly successful at this year’s awards. Nordea as an asset manager was also honoured.

At the Funds Europe Awards 2022 , Nordea Asset Management (NAM) came first in the “ESG Manager of the Year” category. In addition, NAM has also been honoured by International Investor Magazine with the title “Best ESG Firm Northern Europe 2022” . A t the Sustainable Investment Awards 2022 hosted by finance magazine Investment Week: Nordea’s ESG STARS fund family won in the “Best Sustainable Fund Range” category Ń For the second time in a row, Capital Finance Inter- national magazine selected NAM as Best ESG Team Europe . T he jury explained its decision as follows: “NAM levers its global reach and strong capital posi- tion to create positive impacts and drive change.”

L ast but not least, at the International Investment Awards, the Nordea 1 – Emerging Stars Bond Fund was recognised as “Best ESG/Sustainability Fund” . 

nordic friends

NORDIC FRIENDS LOUNGE 2 1

[ Nordic

point of view ]

Christmas in the High North

Candlelight and decorations made of natural materials instead of garish lights – it‘s going to be cosy! nordic friends gives an overview of how Swedes, Norwegians, Danes and Finns traditionally spend the festive season. Let yourself be inspired.

Elf Tomte is the little helper: “God Jul” in Sweden In Sweden, “julfirandet”, the Christmas season, begins with the first Sunday of Advent. This is when Christmas markets open, offering specialities such as “glögg” (mulled wine), “julöl” (Christmas beer), gingerbread and “lussekatter” (saffron buns). On 13 December, the Lucia festival brightens up spirits. A girl in a white robe, representing Saint Lucia, leads processions in schools, retirement homes and other places, accompanied by singing. 23 December is the “little Christmas Eve”: together, families and friends make the last preparations that Christmas elf Tomte didn‘t manage. On Christmas Eve itself, many families gather in front of the TV at 3 pm to watch the Donald Duck special. This is followed by the “Julbord”, a festive dinner with Christmas ham and herring dishes, and the giving of presents. The festivities end on 13 January, when the Christmas tree is thrown out the window on Saint Knut‘s Day. Dance around the tree: “Glædelig Jul” in Denmark Every year at the end of November, the new Christ- mas stamp “Julemærke” appears, designed by artists or well-known personalities such as Queen Marga- rethe. In December, anticipation builds up when the days until Christmas are counted down with the help of a candle. It is printed with the numbers 1 to 24 and lit every day. Things get sociable at the “Julefrokost”, a speciality lunch to which friends, family and colleagues are invited during the four weeks before Christmas. A highlight that not only the children look forward to every year: on 23 December, the Christmas tree is decorated with straw stars and red and white hearts or a garland of small Danish flags. On Christ- mas Eve, red cabbage, caramelised potatoes and goose or roast pork are often served. However, the dessert is also important: rice pudding with a hidden almond. Whoever finds it gets a little extra present. After the meal, traditionally, the whole family dances and sings around the decorated Christmas tree. Hiding the broom: “God Jul” in Norway On the last weekend in November, baking is a top priority in Norway: there should be at least seven types of Christmas biscuits. Also important: before the holidays, mops and brooms must be hidden to prevent evil spirits from riding them up to heaven.

On Christmas Eve, the whole family comes together for the feast. Christmas ham, beetroot salad and pickled herring are popular dishes for the occasion.

On Christmas Eve, church bells ring throughout the country between 5 and 6 pm. After mass, many Norwegians stay in church to sing Christmas carols together. At home, the “Julbord” feast awaits with many Nordic delicacies, including “Julekake”, a Christmas cake with sultanas and cardamom. In Norway, by the way, the presents are brought by the little troll “Julenissen”. In order for him to be in a good mood and not play any tricks, it is essential that he is also well looked after with food. Father Christmas is Finnish: “Hyvää Joulua” The Finns call December “Joulukuu”: Christmas month. At the beginning of the month, people are busy celebrating “Pikkujouluaika”, little Christmas. They meet in the office, with acquaintances or in the sports club, drink “glögi”, a punch made of currant juice, wine and spices, and hand out small gifts. On Christmas Eve, the Christmas Truce is read from the balcony of Turku Cathedral at 12 noon and broadcast on television. Finns also remember their deceased relatives at Christmas, so a visit to the cemetery is a must. This is often followed by a trip to the sauna. Then comes the giving of presents; even animals get presents. And did you know: Santa Claus lives in Finland, on Mount Korvatunturi in Lapland, together with many elves and reindeer. Anyone can write to him at Santa Claus‘ Main Post Office, Tähtikuja 1, 96930 Arctic Circle, Finland. 

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