A Stock Picker’s Market

• Volatile month marked by inflation and growth concerns
• Origo Seleqt: Top-ranked and 18 percentage points ahead of the index since inception
• Strong earnings reports from Dynavox and New Wave
• Theme: Spin-offs – Still an attractive hunting ground

 
THE MARKET
April was a turbulent month, characterized by both inflation fears and concerns about economic growth. The U.S. stock market dropped nearly 10% at the beginning of the month, while the world’s largest economy reported that its GDP shrank by 0.3% in Q1 compared to the previous quarter.

Normally, interest rates would be expected to fall in such a scenario, but this time the 10-year Treasury yield rose instead. The toxic cocktail was somewhat diluted when some of the tariffs announced by the U.S. were postponed, and signals of renewed negotiations emerged. The U.S. stock market ended the month down 4.5%, while the 10-year yield was relatively unchanged after considerable turbulence.

Nordic equities fell by 1.5%, while Nordic small caps held up better, rising 0.8%. Q1 corporate earnings reports have generally been in line with expectations, though often paired with an uncertain outlook. The gap between weak and strong reports widened in 2024, and this trend appears to be continuing into 2025. When companies’ demand outlooks differ so greatly—even within the same sectors—the divide between good and bad stocks will likely grow even larger. We remain humble in light of the uncertain macroeconomic picture and the risk of further geopolitical setbacks, but believe that a "stock picker’s market" combined with the low starting valuations of small caps is likely to create strong opportunities for long-term returns from here.
 
ORIGO SELEQT
Origo Seleqt rose by 3.7% in April, while the benchmark VINX Nordic Small Cap Index increased by 0.8%. The fund’s return over the past 12 months is 14.4%, compared to a 2.3% decline for the index. Since the launch of Seleqt just over three years ago, the fund has gained 23%, outperforming the index by 18 percentage points.

Dynavox, New Wave, and Carasent were the top contributors to performance this month. The main detractors were Profoto, Kalmar, and Elekta.

Origo Seleqt was launched in 2022 as a clear challenger in the small-cap fund market. The strategy builds on the successful management of the long book in the hedge fund Quest since 2013, with a core philosophy centered on:

• Analysis-driven asset management – focus on undervalued quality companies
• True small-cap exposure
• A genuine Nordic focus
• A concentrated portfolio – true active management

It has been a turbulent and at times very challenging three years for global equity markets, but we are very pleased and proud that the fund is currently top-ranked for both 1- and 2-year performance out of all 112 funds in Citywire’s evaluation of Nordic funds.

The market turbulence during Q1 has created new business opportunities, and we have been more active than usual. This includes both realizing gains in companies where we have seen excellent returns over a long period and now view the shares as more or less fully valued (e.g., Invisio, ALK-Abello), and increasing our positions in other favorites that, following the market decline in February–March, now appear unusually attractive. Our largest investments have been in Asmodee (new holding), Alm. Brand, and Kalmar. We also increased our positions in BioGaia and Dynavox, as we mentioned in our Trump update during the height of the tariff concerns.
 
ORIGO QUEST
Origo Quest rose by 2.0% in April. The return over the past 12 months amounts to 12.3%. Quest follows an absolute return strategy, and it is worth noting that Nordic equities (VINX Benchmark SEK NI) declined by 12% over the same period.

The long book performed better than the short book, and together with a slightly positive net exposure, the risk-adjusted return was positive. Dynavox was the top contributor on the long side, while the IT sector delivered strong results on the short side. On the negative side were Profoto (long) and index derivatives. The 12-month beta is 0.1, highlighting the portfolio’s near-zero correlation with the broader equity market. 
 
COMPANIES IN FOCUS
New Wave, one of our largest holdings in both funds, delivered a quarterly report that clearly exceeded market expectations. Organic growth of 9% in an increasingly subdued market is impressive. Previous marketing efforts, particularly for the brands Cutter & Buck and Craft, have paid off. While the quarter did benefit from a slight positive calendar effect, it is nevertheless clear that New Wave continues to gain market share. Perhaps the most interesting development right now is the launch of Craft Teamwear in the United States and Canada. Later this year, or in 2026, Teamwear will also be introduced in the UK and Spain. While most competitors remain uncertain about the future, New Wave is stepping on the gas, just as it always has. These investments do come with costs, but in the long run, they are building a larger and even stronger company. We increased our holding earlier this year and believe that the valuation at 9x EBIT does not reflect the company’s quality and potential.
 
Evolution, a short position in Quest and our best-performing short of 2024, continues to decline. The stock dropped by about 20 percent on the earnings release — the largest single-day fall the company has experienced.

Profit fell year-over-year as Evolution has begun cleaning up its client base, removing customers who do not have licenses to operate in European markets. The UK Gambling Commission already announced last year that Evolution is under investigation for allowing unlicensed operators in the UK to access its live casino services.
Our analysis has been that these customers often consist of crypto casinos or less reputable actors who either do not apply for licenses or are denied due to failure to comply with regulations, for example regarding anti-money laundering rules.

Evolution must now also shut down clients in other parts of Europe in an effort to stay ahead of national regulators who may follow the UK’s lead. In Asia, the company reports that cyberattacks are affecting its financials, but there is uncertainty about what is actually happening — and why Evolution in particular is being targeted. We are concerned that the Asian business is heavily reliant on customers with ties to China, and that these do not represent a sustainable long-term business. Here too, it often involves less reputable operators such as crypto casinos.

Since its peak, Evolution’s share price has dropped by approximately 60% and now trades at a P/E ratio of around 10x. At the same time, it is becoming increasingly clear that revenues are negatively impacted as the company attempts to cleanse its customer base of unlicensed operators. One key question remains for new investors: how were these revenues allowed in the first place?
 
THEME: SPIN-OFFS – STILL AN ATTRACTIVE HUNTING
An Attractive Segment of the Market
Spin-offs represent a particularly interesting segment of the market for finding investment ideas. They have been an important driver for our funds and a strategy we have used throughout our careers. Several legendary investors such as Warren Buffett, Peter Lynch, and Joel Greenblatt have for decades highlighted spin-offs as an attractive area. One reason is that these companies are often too small to attract broad market attention, but more importantly, they are frequently under-analyzed by both sell-side analysts and the media. This creates opportunities for those willing to do their own research.

Academic Support – But Also Risky
Research shows that spin-offs tend to outperform the market, both in the short and long term. For example, U.S. research firm Edge Research has shown that the top quartile of spin-offs has delivered returns that significantly exceed those of the top quartile of the broader market. However, the dispersion in returns is high – the bottom quartile of spin-offs has at the same time performed worse than the lowest quartile of the market. This means that spin-offs come with higher risk, which is likely one reason why many investors, despite the historical performance, choose to stay on the sidelines.
 
Why We Like Spin-Offs – Also from a Philosophical Perspective
We find spin-offs compelling even from a philosophical standpoint. They often represent a major positive shift in a company’s structure, with the potential to create value over many years. This is also why we look closely at both the spun-off company and the parent. The spin-off process typically takes a long time, and both management and the board are likely to have a strong conviction that strategic separation will benefit both entities. The new management team gains independent responsibility, often with strong incentives to perform. However, we have seen that many companies initially adopt a conservative outlook while gaining the ability to allocate their own capital — something that often creates long-term value.

Spin-Offs vs. IPOs
There is a clear contrast between spin-offs and traditional initial public offerings (IPOs). An IPO is often driven by major shareholders seeking to realize gains, aiming to sell at the highest possible price. A spin-off, by contrast, is generally carried out to create long-term value and to strengthen both companies. Swedish business daily Dagens Industri recently reviewed Swedish IPOs and found that very few have outperformed the index. Among the few that have succeeded, many were in fact spin-offs — often executed through the Lex ASEA structure.

Examples from the Portfolio – Kalmar, Dynavox and Asmodee
We hold several spin-offs in the portfolio, such as Kalmar and Dynavox, and during the month we also invested in Asmodee – a spin-off from Embracer. Both Asmodee and Dynavox are examples of spin-offs carried out to strengthen the parent company’s balance sheet. Dynavox was listed with high leverage and has gradually reduced its debt. Asmodee also carried a significant portion of Embracer’s debt at the time of listing.

Asmodee – Low Valuation, Strong Position
Asmodee was listed in a turbulent market in March–April, which put pressure on the share despite a strong initial debut. We took advantage of the decline to purchase the stock below 90 SEK – a level we consider to offer attractive valuation with limited downside. The company is one of the world’s most innovative board game producers and distributes strong brands such as Pokémon. The industry grows in line with GDP (4–5%), but Asmodee has grown faster through expansion in trading cards. The company has conservative margin targets, but we believe margin expansion and future acquisitions provide solid potential for earnings growth. At share price levels around 105 SEK, the stock trades at approximately a 7% free cash flow yield or about 10x EV/EBITA based on 2026 estimates. We see potential for value discovery as the market increasingly recognizes the company’s strengths.

Dynavox – from Undervalued to Strong Momentum
In April, we also increased our position in Dynavox, a spin-off from Tobii, which initially struggled to grow after the pandemic. The stock traded in the 20–30 SEK range for a long time before establishing itself between 40–60 SEK. In early 2025, the share price climbed to 75 SEK before falling back to 50 SEK during the Trump turbulence. We took the opportunity to increase our holding further. Following a very strong Q1, where the company achieved 31% organic growth and improved margins, the stock rose above 80 SEK.

Dynavox is a market leader in assistive communication devices for individuals with speech impairments, such as autism or ALS. The company has gross margins around 70%, but has made significant investments in personnel, support, R&D, and infrastructure. The target is to reach an operating margin above 15%, but we believe it could eventually exceed 20%.

If we were to assume a 17.5% margin on this year’s sales (future margin on this year's sales – not our estimate for the year), the company would trade at an EV/EBIT of approximately 20x – with potential for 20% annual growth and strong cash flows. In our view, Dynavox could double in value over the next few years, though the journey is likely to remain volatile. We also believe that in a broader market correction, the stock will attract many fund managers – not least due to its good ESG profile, particularly in the social (S) dimension – which could over time contribute to a valuation premium.

Best regards,
Team Origo