Large-cap rally continues, mixed performance for small capsFebruary brought continued very strong performance for large-cap indices and finally a small rebound for small caps – although with very large variations. The broad Stockholm Stock Exchange (OMXSPI-GI) rose by 4.5% and the global index (Dow Jones Global Index) by +1.5%. The small-cap index (Carnegie Small Cap Return Index Sweden) ended at +2.1%.

Outflows from small-cap funds create a record-wide discrepancy between expensive large caps and cheap small capsThe most likely key reason behind the weak performance of small-cap equities is the very weak development in net flows in and out of the funds. Generally, inflows and outflows in small-cap funds fluctuated until around March last year. Since then, and particularly since the summer, the trend has been very negative with continuous outflows. In January alone, the net outflow from Swedish small-cap funds amounted to SEK 4.1bn.

Outflows create forced selling pressure in small-cap equities, where funds are forced to sell shares that they are actually positive about. Every forced sale from funds in illiquid small caps generally has a significant impact since the buy side already consists of battered retail investors who no longer have the appetite to “buy the dip”. This creates particularly large movements on, for example, earnings days when liquidity is better and funds generally take the opportunity to dump large portions of their holdings.

At the beginning of the year, the First National Pension Fund (AP1) was wound down and its holdings were transferred to AP2 and AP3. In connection with this, AP2 and AP3 chose to sell certain holdings, which in small-cap companies (e.g. Swedencare) created very strong selling pressure in the shares.

In times like these it is easy to think: “But shouldn’t one buy equities/funds in large caps where flows are positive?”The risk of following trends is that you sell what is unpopular (and therefore cheap) and buy what is popular (and therefore expensive). What we do instead is what we always do – analyse each company and its future prospects, determine a reasonable valuation, and compare that with today’s price.

Our view is that the values of many small-cap companies significantly exceed their current market prices. As an example, the average P/E ratio for the holdings in Kavaljer Quality Focus is 13.8 for 2027 – compared with 19.1 for OMXS30. For this reason, we see good upside potential in the fund’s holdings.

Read the full monthly report with company comments and more in the attached file.

DisclaimerRisk informationHistorical performance is no guarantee of future returns. The value of an investment in the fund may both increase and decrease, and it is not certain that you will get back the full amount invested. For more information about the fund, please see the fund’s factsheet at kavaljer.se/en/.

This publication is addressed to clients and other stakeholders of Kavaljer AB (Kavaljer). The information is based on Kavaljer’s own assessments at the time of publication as well as on other sources. However, Kavaljer cannot guarantee that the information from these sources is correct, and the assessments are based on factors that may prove to be inaccurate. Anyone reading the information should be aware that it does not constitute an offer to buy or sell financial instruments or an invitation to engage in such transactions. The information is based on data known to Kavaljer at the time it was published. Assessments and conclusions presented may be subject to change, and such changes may occur without Kavaljer distributing updated information. Kavaljer is not responsible for any loss or other damage (direct or indirect) related to the use of this publication, to investment decisions, or otherwise, nor for any inaccuracies in the publication arising from incorrect or incomplete information from third parties.

About UsKavaljer ABVisiting Address: Cylindervägen 12, 9th floorBox 1221, 131 28 Nacka Strand, SwedenPhone: +46 8 684 393 00Email: info@kavaljer.se

AttachmentsKavaljer Quality Focus February 2026