Finwire met with Teemu Perälä, a portfolio manager at United Bankers with nearly three decades of experience in financial roles close to the stock market and a long-standing focus on Finnish small and mid-cap companies. Today, Perälä manages the UB Finland fund.

Despite a strong performance on the Helsinki Stock Exchange this year, the manager believes that large parts of the Finnish equity market remain undervalued and that the current upswing does not fully reflect the underlying fundamental conditions in several sectors.

According to the manager, the robust development in Helsinki has mainly been driven by a limited number of large-cap companies with high index weights, including Wärtsilä, Metso, Nordea, and Nokia. Meanwhile, significant segments of the market have lagged behind after several weak years.

– About a third of the Finnish market is still trading at depressed levels, especially within the forestry industry, metals, IT sector, and parts of the industrial sector. Considering that we have had three very challenging years before this, this year's upswing appears much less dramatic, the manager notes.

While Perälä admits that Finland would inevitably be affected by a major correction in American tech and AI-related stocks, he assesses the current market situation as relatively sustainable. According to Perälä, the Finnish market continues to offer an attractive risk-adjusted return profile, particularly in cyclical sectors.

One sector where the manager sees particularly strong recovery potential is the pulp and paper industry. After a prolonged downturn, several companies have announced structural changes, cost savings, and portfolio adjustments, which the manager interprets as signs that the economic cycle is approaching a turning point.

– The upswing is coming. I can't say if it will happen tomorrow or in a year, but it will come. This is a cyclical sector and today we are at very depressed levels.

In addition to the forestry industry, the fund has exposure to selected industrial and energy-related companies, including businesses connected to data centers and infrastructure investments. He also sees potential in metals and basic materials, provided that European growth improves and investments pick up again, especially in Germany.

However, the manager is cautious towards the banking sector. Finnish banks are said to have delivered strong returns in recent years and valuations are now close to historical averages.

– Banks have already performed strongly. Valuation levels are reasonable, but from here I see limited upside, which is why we remain structurally underweight in the sector, says Perälä.

UB Finland holds around 40 positions. Although the portfolio includes several large-cap companies on the Finnish market, these are generally underweighted. Instead, capital is primarily allocated to small and mid-cap companies, where the manager sees greater potential for outperformance.

The investment strategy is strictly bottom-up and focuses on individual companies rather than macroeconomic forecasts.

– It's pure stock picking. I focus on company fundamentals, company-specific events, and valuation. Macroeconomic indicators play a very limited role in my investment decisions, the manager says.

The manager notes that activity on the Finnish IPO market has started to pick up again, which he sees as a healthy sign both for the stock market and for investor sentiment.

Among the fund's larger holdings, he highlights Enento, which operates in digital information services related to risk management, decision-making, sales, and marketing. The manager also expresses renewed confidence in Nokia, which he believes could benefit from increased market share in Western telecom markets following Huawei's exclusion.

– With Huawei largely absent from the Western world, Nokia and Ericsson are well positioned to divide the market between themselves. If margins improve, there is significant upside, he says.

Comparing the Finnish and Swedish equity markets, the manager describes Finland as more cyclical, with greater exposure to forestry, chemicals, metals, and industrial companies. Sweden, on the other hand, has a broader universe and stronger representation in healthcare, technology, and medical technology.

Despite the relatively small size of the Finnish market, he emphasizes that the country is home to several world-class companies, including Wärtsilä, Vaisala, Nokia, and leading players in the pulp and paper industry.

Looking ahead, the fund is positioned for a scenario where a gradual improvement in European growth, combined with a cyclical recovery in depressed sectors, creates new opportunities in Finnish equities.