Avanza Bank Holding AB
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Hello, and welcome to the Avanza Bank Holding Interim Reports January to March 2021. [Operator Instructions] Today, I'm pleased to present Rikard Josefson, CEO; and Anna Casselblad, CFO. Please go ahead with your meeting.
Okay. We welcome everybody to this update for the first quarter of 2021. I will start with a business overview. And then I will turn over to Anna, who will go through the numbers a bit deeper. First, I want to comment on the fact that we, on last week, on Monday evening, did a reverse profit warning. The reason we did that, and Avanza has never done that in the history of our company, was basically that when we put in all the figures together and we looked at the expectation for the market and we deviated on the positive side with over 50%, we thought the prudent thing to do also regarding the regulations was to put out that reverse profit warning into the market, as we did. Having said that, let's go to the first slide. And today, I will start off by talking a little bit about the net inflows through the quarter. The net inflow was SEK 30.5 billion, which is a record number. It's 40% up year-on-year. And last year, it was 21.9%. So we're extremely happy that the customer has the faith in us and put a lot of money on the platform. And also, to put a bit of perspective on the net inflows that, in 2019, we had SEK 32.6 billion for the full year, and that was the first time we ever were over SEK 30 billion for a full year. So we've really shown during 2020 and the first quarter of 2021 that we're scalable and that our growth in -- of course, some part of it has to do with the pandemic and the interest for savings market. But it's very, very positive that the net inflow is sustainable into the first quarter even though last year was very good also. We don't have any new market share figures for the first quarter. So what we know is that we took 19% rolling 12 months of the market growth in 2020, and that we ended the year, last year, with 5.8% market share of the total savings market. And of course, that implies that we have 96.2% that we still can go for when it comes to growing the company. And of course, the growth of Avanza is two-folded. One is growing the AUM, the savings capital, and we do that both by inspiring our existing clients to add more savings for the platform, but also, of course, adding new clients on the platform. And that quarter has been fantastic when it comes to the new number of clients. We have 152,800 new clients in the quarter. And last year, we added 300,000, a bit more than 300,000 clients on the platform, which was a record year. So we did 50% of last year's growth in one quarter, and we're extremely happy with that number. Also interesting to note is that, when we ended last year, about 400,000 of clients were active daily users of the Avanza platform. That number is now 500,000. So that means that more than 1/3 of our clients actually interact with us every day, which is very positively, of course, because that means that they get used to us, they interact with us. And that creates sort of stickiness to interact with Avanza platform every day. And that is, in my opinion, given a lot of digital experiences a very, very high number if you compare it to the total customer base. And also, of course, the -- part of the growth and the results we have shown is, of course, due to the acceleration in brokerage generating customers. And if you compare today a year ago, we have more than 280,000 more clients generating brokerage income. And generating brokerage -- or brokerage generating clients is up 31% quarter-on-quarter and 72% year-on-year. So the interest from savings has really been shown by activity. And of course, we have volatility in the market, and savings is high up on the agenda for many, many households at the moment. And also looking at commission-generating notes, it's up 53% quarter-on-quarter and 41% year-on-year. So it's -- brokerage generating turnover is up 41% quarter-on-quarter. So all in all, it was a very, very high activity throughout the quarter. Looking, as we always do, at the market share, which is important for us. At the stock exchange, we can see that we have gained market share when it comes to number of transaction and are over 20% now, 20.7% of all transaction on NASDAQ and First North is done through the Avanza platform. And we also have over 9% of the turnover going through the Avanza platform, which is important for us because that shows that our offering in the market is appreciated by the clients and the high activity is taking place on the Avanza platform. Going forward, we can also see what stood out in the quarter a bit is that, or if you look at the turnover, usually about 10% in the last couple of years has been foreign trading. But going from Q3 especially last year and starting in 2020, the interest for foreign trading has, I would say, almost exploded during the quarter. And around 27% of our turnover on the stock exchange have been in foreign markets, especially, this is in the U.S. market. And we see this as positively for our clients because our clients are getting more interested in other markets than Sweden. And that means also that they diversify their portfolios in different geographies, which we, as we always say, is important diversification and the long-time horizon in new savings. You can especially see that the younger clients, homebuyers is not as big as it is for the older client segments. And what this will go taking -- what will happen in the future, I don't know. But of course, a lot more clients are comfortable in trading in other markets than Swedish. And that's for the diversification purposes for their portfolios, in my opinion, is good news. Also which we have not talked about so much on these calls is that we had a record quarter for our Corporate Finance, and we had -- and that's also good news. Of course, the climate for Corporate Finance has been very positively during the first quarter. But also, we are harvesting a little bit because 2.5 years ago, we hired a new Head of Corporate Finance and we really took on a whole new team, which is about 7 people today. And they have been working very hard, with a lot of groundwork, talking to a lot of clients. And now we have a position where we can use our placing power as an argument for using Avanza for Corporate Finance activities. And we can see that we do financial advisory. We are retail manager. We're retail distributor. So the quarter has been fantastic for Corporate Finance. But it's also important to understand that we have the Corporate Finance Department for 2 reason. One, of course, is to get profit from it. But the other one is to make sure that our clients are exposed to interesting investment opportunity, IPOs, and that our clients can see the value of being a client, if you're interested in the IPO market because very many of the interesting IPOs in Sweden today will pass our platform, even though we can be -- have different capacities in the IPOs, we see this as a very strong argument for both new clients, and of course, giving that extra value to our existing client base. For example, we were the retail distributor for the first SPAC in Sweden. and we also did the Idun IPO as a financial adviser. So a fantastic quarter. And the team has come together and starting to deliver in line and even above my expectations. One other thing we did in the quarter was, of course, extended the Start offer that we had since 2016 for equity trading to funds, which means that we give all fees back to customers who has less than SEK 50,000 in mutual funds. Of course, we do this to inspire people to start saving. We know that almost 3 million people in Sweden has a mutual fund savings capital below SEK 50,000. And this has targeted about 300,000 of our clients with an average mutual fund capital of SEK 12,000. And of course, this will in the short run cost some income for us. It's not on a material matter. But at the same time, we are absolutely convinced that this will inspire taking down barriers and make more people interested in savings and give them that extra push to start going in the mutual fund savings. Talking on mutual funds, of course, there's been a lot of debate about third-party distribution fees, especially when you do it in combination with advisory services. We are an execution only platform. We don't do it in advisory service manner. And of course, we have studied the U.K. and different markets where there is no third-party distribution fees. We see new entrants in this market with different business models. But we are comfortable given the value that we add to our clients that we will be able to change our business model to, for example, a platform fee or something else, and we are prepared for that. At the same time, we are, in my opinion, the most transparent company in how we charge, how much money we get from each client. And it's also important that the regulators, if they start moving in that direction, make sure it will be in the interest of the customer and that transparency will still be there so that it's not will be something that will be more complicated for the customers to understand. But my final word on that is that I'm very comfortable that we can change the business model if we needed to. And at the same time, looking at the mutual fund business, it was a record quarter for us. We had SEK 177 billion in mutual fund capital. And you can note also of the capital, around SEK 60 billion is actually in our own mutual fund company. So it's been a good quarter for mutual funds also. Also looking at one of the advantages for Avanza is, of course, we are a perfect partner for product challenges. And we'd like to state that, that if you look, for example, a mutual fund platform, a lot of mutual fund companies consider the cost of distributing the mutual funds on the platform as very cost efficient because you get exposed to 1.4 million clients. Also, we have third-party savings with savings account plus, where consumer lending companies preferably can get deposits from our client base, which they can use in their business models. And that will also add some value to our clients, since they get interest rates on the cash, so to speak. Looking at mortgages, I'll come back to that. Our ambition is to be a mortgage platform. Now we have 2 partners on the mortgage platform, in combination with our own private banking mortgage loans. And of course, our cooperation with Morgan Stanley, for the more advanced customers, gives the whole Avanza mortgage offering to our client base, and that is, I know, a lot appreciated for Morgan Stanley, and most important of all, very much appreciated from our own clients, of course, which adds value to the client base of Avanza. And during the first quarter, we also added Landshypotek as one of our partners on our mortgage offering. And if you look at the graph here, you can see that given the own private banking mortgage loan and the external mortgage loan, we now have SEK 25 billion on mortgages on the platform, which is, of course, a very low number, given the total market of SEK 3,600 billion, so market share of 0.6%. But as I said for a few years now, building a mortgage portfolio is a marathon. And I think we have we have left the starting line, we've started to run the race, we are a long way from finishing it, but quarter-by-quarter, month-by-month, day-by-day, we're growing the mortgages within Avanza, and it's now SEK 25 billion. And also, Landshypotek added some value to us because they have a higher loan-to-value, 75% compared to 60% of Stabelo, and is also part of the entry market. When you buy a new house, you can use Landshypotek and not just refinancing. And you can also have vacation home or holiday homes being financed by Landshypotek. This is early days, but we're very happy with how the cooperation started. And we also believe that Stabelo and Landshypotek will benefit from each other, because in the long term, we, of course, want to be a platform, the go-to place where you want to check out your mortgages to get good rates. And both these partners we have, they have very low mortgage rates, no negotiations. We don't put the pressure to have some other products to get the good mortgage offering. And in my opinion, I think the mortgage loans are going from a relationship product to a price and convenience product and they are more of a commodity, and that will benefit the Avanza offerings going forward. Only one big thing that we are excited about a bit is, of course, the transfer of pension. That was the new legislation kicked in 1st of April, where it's about SEK 600 to move a pension at the maximum amount. It's very early days. We see a lot of interest in it. And if you look at the total pension markets, which is about SEK 3,500 billion, given that we these are not in the union negotiated pension schemes, the addressable market for us is about SEK 820 billion. And we have about SEK 37 billion in capital in our pension company when it comes to unit-linked insurance. So that means that we have -- we see great growing opportunities going forward. I said it before, I think it's a tailwind for moving pension, but it's still an administration hassle which we will help our clients with. And the results, we will see, I would say, in Q3, Q4, because it takes about 60 days to transfer a pension from one company to another, but we see interest from our clients, and we are very positive to this opportunity for the clients to get a better offering, with wider variety of investment opportunities and also no capital fees. So we both have the low-cost argument for our customers and the argument, they can invest in single equities and in mutual funds. And the offering is much, much broader than the competition. And I think that part is something we don't talk enough about when we talk about the value of Avanza's pension offering. And also, one slide that we added for this one is a little bit interesting is to add value of the customer base that we have. If you look at the median age of Avanza clients, it's 38. The median Swedish person is 48 years of age. And as we know that the wealth in the society is very much tilted to the older generation, with the customer base that we have built that on average is younger than the -- 10 years younger than median Sweden's customers, of course, the wealth transfer that will take in place in the medium and long term, that will mean that older generation will pass on wealth to the younger generation. The young regeneration is very much customers of Avanza. And that is an automatic growth opportunity for us, because our young clients will make more money, save more and inherit more money also in the future. So that's a long-term perspective that we are very positive about. And always, looking at Avanza, of course, our employees are the key to all our successes. And we are very happy that, for example, Reputation&Trust ranks as #1, when it comes to how much you trust the financial company. When it comes to Universum’s, ranking among students, we have made great improvements in our ranking as a very, very attractive place to work. And all this is, I would say, the cornerstone of the growth of the company. And before I end, I would say that even though we had a fantastic quarter, we're happy about the results, we take care of our clients. All the things we do on the platform, we can do better. And that constant improvement is part of the culture of Avanza. And with the fantastic employees that we have, I'm looking very much positively at the future at the moment. And we have absolutely raised the bar for our performance in Avanza, just due to the fact that we have proven our scalability, proven to cater for the volumes, and taking care of our care employees and our customers. And with that, I will turn over for the first time to Anna, who started as the CFO, after Birgitta does fantastic work for 13 years, on February the 1st, to go through the numbers. So I will say welcome, Anna, to your first Q1 results.
Thank you very much, Rikard, and good morning, everyone. I can only agree, it's been a fantastic quarter, and that I'm very glad to finally be on board. Looking forward to collaborating with you all. Let's start with the short overview. As Rikard said, this has been a very strong quarter for Avanza. All income lines are at record levels. We report a cost decrease of 8% compared to last quarter. But when excluding one-offs, we have a cost increase of slightly below 4%. I will come back to that. Operating profit is upward 56% compared to last quarter and more than 100% compared to Q1 last year. Return on equity ended up on 74%, also on record levels, and should be compared to a long-term target of 25% to 30%. On back of the strong growth we've seen since the beginning of last year, we will, as mentioned before, review our long-term targets later this year. Earnings per share were slightly about SEK 4, which is more than twice as high as same quarter last year. Our income development continues to be strong. This is mainly due to substantially higher net brokerage levels and improved FX income. FX is reported under other income. In the quarter, the turnover and commission generating notes increased by 41%. Trading in international stocks accounts for 27% of the total turnover and has more than doubled compared to previous quarter. Brokerage income per SEK of turnover increased to 12.2 bps, up by almost 1 basis point. This can be explained by higher customer activity within lower brokerage fee classes. This underlines the strong trend in these customer segments. Fund commissions increased by 21% compared to Q4, mainly due to higher average fund capital. Income per SEK of fund capital increased to 38 bps for the quarter. Notable is that we saw a decrease by the end of the quarter, falling back to Q4 levels, around 36 bps. The expanded Start offering launched in March affected commissions marginally with SEK 1.5 million. Net interest income increased, mainly due to higher volumes in margin lending. On February the 1st, we lowered the interest rate for the private banking mortgages with 20 bps, but only for those customers with the savings capital over SEK 10 million. Other income increased with 34% versus Q4, not only driven by FX. We also saw a record quarter for Corporate Finance, which Rikard already mentioned. In Q4, we launched the securities lending in endowment insurances, which has contributed with SEK 4 million in Q1. This is an offering where we returned 60% of revenues to the customers. SEK 6 million have been paid out during Q1. Avanza Markets also shows a strong quarter, even exceeding the high level in Q1 last year. Worth noting is that the increase in other income was despite a positive one-off effect of SEK 63 million in Q4, tied to the reduced shareholding in Stabelo. Coming back to net brokerage and how to interpret the development. In the monthly statistics, we disclosed number of commission-generating notes, but not the volume. But as you can see in this graph, there's a very strong correlation between number of notes and turnover. In these figures, the international trading is included. Comparing number of commission-generating notes with net brokerage income also shows the same trend. Looking at operating expenses. In the fourth quarter, we made a write-down of SEK 60 million, referring to rental costs of our previous office on Vasagatan, which couldn't be sublet. In this quarter, we managed to transfer the lease, implying a reverse write-down and a positive cost effect of SEK 10 million in other expenses. Excluding one-offs in both quarters, expenses increased by almost 4% compared to Q4, mainly related to personnel. The cost guidance for 2021 remains at about 15%. This also goes for the long-term guidance of 9% to 12%. To sum up, the strong business development during the quarter resulted in an all-time high operating margin of 79%. The graph demonstrates the scalability of Avanza's business model. The income to savings capital rose to 63 bps, an increase of 7, while the cost to savings capital ratio decreased by 5 bps to 13 bps. When excluding the reversal, the cost of savings capital was 14 bps. By the end of June, Avanza's capitalization is governed by the leverage ratio requirement of 3%. In Q1, we've seen an increased level of deposits. Besides, the Q1 results are not audited, and thereby not included in the calculation. This explains the lower ratio this quarter. However, we're still above our internal target of 3.8%, meaning we still have room to distribute another SEK 2.95 per share of last year's profit, in which the Board has plans to propose to an extraordinary general meeting later this year. And that will be when the Swedish FSA's recommendation is repealed, which is expected to be in September. It's still impossible predicting what the new normal is. But given the strong figures and growth we've reported, it proves that Avanza has reached a new level. And with that, I would like to hand it back to you, Rikard.
Okay. Thank you very much, Anna. And I think we will just open up for questions. So fire away.
[Operator Instructions] Our first question comes from Robin Rane from Kepler Cheuvreux.
Yes. So I'll start with the trading in foreign securities, which, as you mentioned, was 27% of the turnover volume. But can you give us a sense of the share of savings capital invested in foreign securities? Is that a corresponding figure or would that be below? And also, I think in the report, you mentioned GameStop as being only limited -- having a limited impact on the trading. But if the trading and foreign stocks concentrated to a limited number of stocks in general or more broad-based?
On the first question, I don't have that figure, so we have to come back to that. On the second question, I would say that, of course, we have some GameStop trading and so forth. But I would say it's a lot of Tesla, it's a lot of Alphabet, it's a lot Facebook, Netflix. So I would say, still there's a large tech companies in general.
Okay. So it's concentrated to sort of a handful of stocks.
I would say concentrated with the tech sector. And I think that a lot of our clients who are very into the market, try to find a bit smaller equities on the U.S. market with the growth potential in the tech industry. That's my answer. It's more tech related. But of course, if you look at Tesla, Facebook, Alphabet, Microsoft, of course, they are overrepresented when it comes to the stocks that are traded.
Okay. Okay. And then on the net brokerage margin, which was stronger in the quarter, and you note that it's because of lower commission classes. Do you usually see a migration of new customers to higher commission classes? Or do you think that the stronger margin in Q4 is sustainable -- no, sorry, in Q1?
A lot of the new customers come in with the lower broker classes. And we can see that a lot of new clients make smaller trades in the lower brokerage classes. So of course, the more money you get, the longer you're on the platform, the more you move up in the brokerage classes. That we have seen always in Avanza, but at the same time, a number of new clients, so to speak, tilted the trade into the more lower brokerage classes.
All right. And then lastly, can you say anything about the activity in -- so far in April? Or do you have to wait for the figures to come up?
You have to wait for that. But I would say that, that looking just at the market turnover, April is very similar to March.
Our next question comes from Patrik Brattelius from ABG.
Yes. A few questions from my part. I know we're just a few weeks into the new rules regarding pension transfer rights. But have you seen -- you mentioned that you expect to see any -- that you expect to see effects in Q3 and Q4. Can you elaborate a little bit on that? And your thoughts how this will impact the savings capital on the platform, please?
I think it's impossible to have a prediction about that. Of course, my belief is that it will have a positive effect when the money starts being transferred on to the Avanza platform. But the magnitude and how much it will be, it's impossible to say, because this has been 19 days ago or 20 days ago, this came in place. And we -- what I can say is that we see a lot of interest from clients transferring pensions. And then how many will actually go through with it, how will we play out, we have to learn that and come back in the next couple of quarters when we can see more results, because any opinion from me today would just be guessing. So I think it's just too early days to comment on that, more than we see -- that we think it's going to be a positive effect, and we see it as an opportunity, that to put any kind of numbers of that would be irresponsible from my perspective.
Fair enough. What is Avanza doing now actively to increase the occupational savings capital on the platform?
We always talk with our clients. We do blogs. We do pods. We do all that information, inspiration education, and to inspire our clients to take the best care of the pension capital as they can. And of course, those activity has increased in the last couple of weeks since the reform kicked in the 1st of April.
Great. And then you talked a little bit about the kickbacks regarding fund-related income. And you mentioned you're prepared for that. Could you elaborate a little bit on, for example, how long would it take you to change to a platform fee? Could you give us any details or some -- share some information regarding that?
No. What I said is, a platform fee is one of the alternatives you can use. There are different alternatives. We have looked at other markets. And that's -- we could probably change the business model quite quickly if we were needed to. But if you look at, for example, when the third-party distribution fee was banned in the U.K., to my knowledge that the period where you have to change your business model from the FCA was 2 years. And if you get new legislation in Sweden, which FSA is not the ones making legislation, that's actually the government and -- who has to pass a bill in Parliament, and first of all, you have to have -- the political way of getting this done, in my opinion, is it will take at least 2 years or something like that. And then if you have 2 years, the adaptation period, then you get your feeling for the timeline in this. So I will not comment on exactly how we'll do it. But it's not that we would expect something to happen on Friday, and we have to have a new business model on Monday. That's not how it will work -- play out.
Okay. Yes. Fair enough. My last question is regarding, do you see any gamifications risk, given the fact that so many of your customers have bought stocks abroad and perhaps not are aware of that risk? And how do you work with the gamification risk from Avanza's point of view?
I think we do a lot to avoid gamification when it comes to trading. We -- you have to answer certain questions to be able to trade in certain type of instruments. We inspire our clients to read the different -- not warning sign, but what kind of risks they are taking on. We have -- all our communication is about long-term view diversification. So I think we're doing a good job of informing our clients about risks and how to think about risks. But having said that, it's also responsibility on the client to take that information into account when they make their investment decisions. So I think that we are doing a good job. And I think that the clients are consuming our pods, blogs more than 100% more than a year ago. And we know that a lot of clients are very much aware of the risk. Having said that, would it be 1 or 2 clients who have not to understand what they are doing? Probably yes. But I would feel comfortable that we have given them every single opportunity to get informed about the risks that they are taking. So I think we are doing this prudently in a very good manner.
Our next question comes from Nicolas McBeath with DNB.
So first, a high-level question. I was thinking about, now that you have almost -- yes, 1.5 million customers. Very profitable. Obviously, looking at the quarter, you have more than 500 employees. So thinking -- like what is your strategy to maintain the culture in Avanza, built around very stringent, cost efficiency, innovative culture that's about getting content and wasteful with resources? I mean probably getting more difficult, I guess, to build the culture around being a challenger. Do you agree on that? And what's your thoughts about that?
I think you have a fair point, Nicolas. But I think that the way we address that issue is a lot with that, the most important part of our DNA in our culture, and that's constant improvement. We constant question ourselves. We constantly think how can we do things better. And I think that culture, we have our rainy days twice a year. We do a lot of innovation. We have a lot of workshops around new things, how to think differently about what the things they are doing. That would be my simple answer. But at the same time, of course, as we grow, we have to be aware to keep the cost efficiency, keep our employees treating every cost as this was, they were spending their own money, and I think it's a lot of that falls down on the management and my shareholders to keep that culture alive. And I think we're doing a decently good job on that. And also, we have added a lot of new people that have been embraced by the culture. And we look at their behavior, so to speak. They're more part of the old-fashioned Avanza culture then that we are changing into something new. So we are working a lot of this. So we have, just for example, after works on Zoom. We have a lot of meetings digitally now. We talk a lot about our culture. So I think we are -- also, where we are recruiting people, we spend a lot of time trying to understand if they will fit into the culture. And we'd rather say no to somebody with high competence but maybe the wrong attitude than think that we can change the attitude. So that's how we are dealing with it. And it's a very important question, and we are very much aware of it, and we are handling, in my opinion, in a very good way.
Okay. Interesting. And then a few more specific questions on the quarter. So first, to me, the surprise on fund commissions than mainly from the raised commission or -- yes, fund margin, so fund commissions in relation to the fund capital. So could you say something about what drove that increase in the quarter? Is it -- yes, mix between different type of funds? Or -- yes, what can you say about that, please?
As Anna said, basically, the answer is very simple. It was proportionally more actively managed funds, on average, during the quarter, and that gave us the 38 basis points. And as Anna pointed out, it fell back to 36 basis points at the end of the quarter. So that's just more actively managed funds.
Okay. And is your -- are your own actively managed funds also driving part of that increase?
That's one piece of the puzzle because both are, Avanza World Tech by TIN and Avanza small-cap by Skoglund has been very successful and gathered, in my opinion, a lot of AUM. And of course, that has a positive effect.
Okay. And then going back to your currency revenues, yes, 27% of the turnover in Q1 was in foreign shares, right? Could you say something about how that share stood at the end of Q1 or perhaps even so far into Q2?
I will not comment Q2 for the simple reason, I don't have that figure. So -- but at the same time, during the quarter, of course, you saw that the total activity went -- was a little bit lower in March than it was in January, February, as we have shown in the figures. And of course, that goes all across the board, so to speak. And it's -- if you have asked me in Q4, that would 27% of the turnover in Q1 being foreign stocks? I would say, absolutely not. So it's extremely difficult to predict where the clients' interests are at this volatile environment with a lot of news spreading around. But I would say my prediction is that if it was before the pandemic, the foreign trading was 10% of the turnover, now it's 27%. I still believe it will be a number higher than 10% in the future. And if that's 20% and -- or a 17% or whatever the new normal figure will be, it's so impossible to predict. So I will not even dare to do that. But I would say that a lot more clients are becoming much more comfortable trading in other markets than Sweden. And that, I think, will be there going forward, but too early days to have a prediction about, and stability in those numbers.
Yes, I understand it. But can you say something about the trend in the share of foreign trades throughout the quarter? So it was 27% in the quarter in total. Could you say anything of what it looked like, yes, let's say, in March or at the end of Q1?
No. I don't have those figures.
I would say it's been quite a high share throughout the quarter.
Yes.
But it might be lower in March, but still on a very high level.
Yes.
Okay. And then another follow-up on that. Just reflecting that -- reflecting on that 30% of the revenues in Q1 came from currency revenues. And yes, if you annualize the Q1 level, it's -- I think it's around SEK 1 billion per year. So I mean, I guess this is rather disconnected from the costs for you providing this service to the customers, of trading equities abroad. Do you still see no conflict between the very high profitability on these trades and your policy and customer promise, which is really built around more to the customers, less to the bank and so on? And -- or do you see any reason why you could consider reducing this fee, maybe to help your customers diversify further geographically, as you mentioned earlier, Rikard? And potentially reducing this fee could also drive even more share of foreign trades, and compensates slightly for the lost margins? How do you think about that?
Well, we think that if you put together the brokers for foreign trading, with FX for foreign trading, we think we have a solid offer that's appreciated by clients, if you look at the combination of foreign brokerage and FX. And of course, the foreign brokerage comes with a higher cost than the Swedish brokerage. And of course, we had this debate a few times now, and I think that we still want to understand what the new normal is. And what the normal is, in my opinion, will be probably when society opens up, when people are vaccinated, when people come back to work. And then we will see how it plays out. But of course, that we mentioned before, we did a very, very small step when we had a free of charge mutual funds below SEK 50,000. We are in a position now with the profitability that we have, to invest some of our income in different things. But when we do that, we want to make sure it's things that are appreciated by the clients and also will drive net inflow, new customer and customer satisfaction. And my boring answer, Nicolas, is the same as before, that I still think it's too early days to take any conclusions. But of course, we are very happy to have that position now, that we are absolutely willing to invest income in further growth. But then we have to figure out how to do that in a sustainable way. Because even though we have great results, we have great expectation for the future, we still know that markets goes up and markets go down. And we have to be able to sustain anything during a bit boring times also. So it's a debate within the company every day. And I will not tell you first, Nicolas. I will tell you all when you do something.
Right. Sounds good. And then another question on kind of leverage and costs for providing brokerage to our customers. Looking at brokerage expenses, it seem rather stable at around 15% of your gross brokerage income despite the kind of surge in volumes and the increase in gross brokerage income. So I was wondering, is there anything you can do to get more leverage on these volumes to tick down the brokerage expenses, either in absolute terms or at least in relation to your gross brokerage revenues?
I would say that we have -- we are at the highest level when it comes to pricing in NASDAQ. And we are at, so to speak, top place when you get the lowest cost. We are, of course, always in negotiation with NASDAQ about costs. But we are actually thinking that the cost that we are charged by NASDAQ is quite reasonable given the volumes that we have. So I would say, don't expect that to be a big differentiator going forward. In the foreign trading, of course, the cost is we pray -- we pay brokerage to our brokers in foreign markets. And of course, if the volume still goes up, we will be able to negotiate that, and that will have a positive effect. But that's nothing that I think you will take into account in -- going forward, we will see how much we can pressure this cost. But all in all, in the Swedish market, I think we are at the bottom of what we can get from NASDAQ when it goes to costs.
Okay. Right. And then my last question, on occupational pension. You mentioned now, your estimate of the addressable market for you in occupation pension. I think it was around SEK 830 billion (sic) [ SEK 820 billion], right? So it seems like your market share of that addressable market is just below 5%. Do you have any thoughts on what should be your kind of natural share of the addressable market in occupational pension in your current customer base?
Very good question. Very different to answer, because since our customer base is 10 years younger than the median age is Sweden, of course, our customer base, yes, by definition, will probably have a bit lower occupational pay -- pension capital. But at the same time, I would just -- yes, just to give you a -- if we have 5.8% market share of the total savings market, I can see no reason why we shouldn't have that as a first step when it comes to occupational pension.
Our next question comes from Maths Liljedahl from SEB.
Yes. A few follow-ups or short comments maybe. The definition of institutional investors, I see that the number of commission notes are up quite significantly in Q1. How do you define institutional investors? And what is that coming from, then the big pickup in commission notes? Is that something you can clarify?
Well, that's basically the business that we have with different fund companies that uses our brokerage team for buying and selling equities within their funds.
Okay. Okay. And do you have any idea? I mean obviously, I missed at least on other income. I guess I was not the only one related to currency-related trading. Do you have any guidance for how can we forecast, get a better idea of forecasting this? Obviously, number of foreign trades. But is that something we can monitor? Or could you? When you publish monthly statistics, say how high share of commission notes has been outside of Sweden or anything?
We think that the numbers we published in our monthly statistics are very transparent. If we had to change that, I'm looking at Sofia at the moment and Anna. We can take back that question and think about it. But we think the information we give is sufficient. But at the same time, as I said earlier, if you have asked me in Q4, when I think the foreign trading was 17% or something like that, that would you deliver 27% foreign trading in Q1? I would have absolutely not forecasted that. So we will take that question back to us. But at the same time, the slide that Anna showed is very much -- that the turnover of the stock exchange and number of commission-generating notes goes very much hand in hand. That would be my answer now.
Yes. And I would assume younger clients are probably more inclined to trade in foreign or are comfortable with trading foreign stocks as well, but okay.
Our next question comes from Jens Hallen from Carnegie.
First, perhaps your final follow-up on this foreign trading. I mean the new customer numbers in January and February were exceptional, like most things in this quarter. Were they -- are they representing a big share of this foreign trading?
I didn't really hear your question. What customers?
Yes. So net new customers in January and February was something like 110,000. And what I'm trying to understand is whether they make up a large share of this foreign trading. What -- is there a particular customer group that do the foreign trading? Or is it more broad-based in the whole portfolio of customers that you have?
No. It's absolutely broad-based. But I would lie if I didn't say that in the -- I think it was end of January, we got a few thousand customers who went into GameStop with an average amount of about SEK 3,800. But that doesn't affect the large number, so to speak. But on the margin, we had a few thousand clients who came on the platform to trade exotic American stocks at the volatility in GameStop and so forth. But that was not a big event.
Okay. And then I think you also said that the -- it's been mainly general tech stock that's been driving this share, not GameStop.
Yes.
Okay. fine. I think we will try to forecast this going forward. So then just 2 quick questions. One, on costs. I mean you still have your 15% for this year, 9% to 12% thereafter. Given the huge inflow of new customers and savings capital and activity, are you missing out by not investing even more, i.e., limiting it to only 15% costs now? What's your thinking about the investments?
I think the investment is -- you have to understand, when we increase the cost of 15%, that means that we're adding a lot of new people. And you can add new people, but you also have to make sure to get them in production, get them into the corporate cultures and so forth. So in my opinion, there's a limit on how many new people you can add to Avanza to keep the culture in place. And also, I would lie if I didn't say that, in my opinion, we are adding on people all the time at the moment. But in some competencies, it's very difficult to find the right people. So I would like to add on people a bit quicker. And that's -- so we are comfortable that the 15% is what we can increase the cost base and make sure that we are still cost efficient and get productivity out of the new employees. But then, of course, we have also, during the quarter, added some more people on customer service, back office and so forth, just due to the huge inflow of new clients and of capital. But that's something that we managed within our course of guidance.
Okay. Perfect. And then my final question, and that's on the Landshypotek mortgage offer. I presume you're not going to want to tell us about exact margins. But can I just ask, is it a profitable product for you? Or is this sort of another hook to keep the customers satisfied and stay with you and effectively use your more profitable services?
Absolutely. It's a profitable product for us. We make money on the relationship with Stabelo and Landshypotek because we have very low costs running these relationships, especially -- we had start-up costs when we added Stabelo, of course, for 3, 4 years back. But now we can, I wouldn't say plug-and-play, but Landshypotek was very cost -- low cost for us to integrate them. And now when they are integrated, the income we get will be almost top line, bottom line.
Okay. Okay. Perfect. And then actually, finally, on the targets. So you -- I think you said you're going to come back to those targets. The 25% to 30% ROE, I guess, is one, the one that sticks out being, of course, significantly below where you're currently trading. Is it still ballpark, that number you think is reasonable for Avanza?
And if you look at the return on equity target of 25% to 30%, I think when we set that target, we were usually going around 27%, 28% or something like that. So it felt very comfortable -- not comfortable, but challenge in keeping that up, given the growth. But I would say that, of course, that's one of the targets that we have to revisit. And Anna, me, Sofia and the management team will do a thorough job of revising these targets. And with a high probability, we will come back during the year with revised target for 2025, or what time frame we'll set on that, because, of course, it's -- they're becoming a bit not challenging anymore. Even I have to accept that fact. So we will come back to that. And of course, the return on equity target is something we have to work through quite thoroughly to be able to try to -- in our forecast work and understand what we believe about the future.
[Operator Instructions] Our next question comes from Adela Dashian from Handelsbanken.
Yes. And congrats on a solid quarter. Very strong growth, obviously. Most of my questions have already been asked, but I do have 2 follow-ups. The first one relates to the new normal, so to say. You mentioned earlier that you've seen similar performance in April, as to March. Yes, consensus points to a decline from current levels in the quarters to come. And I would assume that, that is in pace with society reopening and so on. So how sustainable do you expect current levels are? And I understand if you can't answer that directly. So do you prioritize to keep growth at current levels? Or do you think that, that will be a challenge going forward?
I wonder -- that's the million-dollar question you're asking. I'd just say that we try just to focus on our clients, our offering, improvement every day, to everything we can do better. We can grow in good times and bad times. I'm absolutely convinced of that. Then it's more a question of how much will we grow in a normal market given the growth that we have now in a very special market. I don't know. But I still think that we have very, very large growth potential. No matter what the circumstances are, then the level of growth will, of course, be affected by what the new normal is. That's the only answer I can give you.
Yes. Good. Understandable. And then also, on the fund commissions. And I guess this is in relation to your decision to return those commissions to clients with savings capital below SEK 50,000. You did mention that you're open to making more changes to the business model, and one potential change could be introducing a platform fee. But is it safe to say that you don't feel comfortable with the funds business going forward? Or do you view it as income at risk is, is it fair to say, besides to investigate kickbacks and government introduces potential regulatory changes going forward as a result of that?
I don't view it as income at risk. Then I'm always wrong. But we had 39 basis points, or was it 38, in income from the mutual funds. And I always said for several years, and I've been totally wrong, that I believe that we would see a larger shift to cheaper funds, index fund, so that the 38 or 36 basis points will be a lower number in the future. And I still believe that there will be a price pressure in mutual funds for different reasons. But I'm absolutely convinced that any income at risk, we will compensate with volumes. So that we will still have a healthy income from our mutual fund business just because it will be a lot larger in the future than it is today.
But the decision to return the fund commissions to these clients, does that have anything to do with the FSA position to investigate kickbacks? Or was that an isolated decision?
Absolutely not. You don't -- we started working on that offering in the fall of 2020, long before the discussion were out about third-party distribution fees. So there's no connection to that. And when we see that giving these fund commissions back to the clients below SEK 50,000, we view with us an investment in further growth to inspire more clients to start saving. We see that's part of our role in society, inspire people to take care of the person finances. So from my perspective, the income that we have given away, so to speak, is not given away income. It's investing in further growth and a better future for millions of people being Avanza clients.
There appears to be no further questions registered. So I will hand back to speakers for any other remarks.
Okay. Thank you for listening in. And I hope you all will have a wonderful Tuesday. And stay safe. And we will talk to you in July, next call, when we will produce the Q2 results. Take care. Thank you, everybody.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect.