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NordicCorporateBond Fund (Class R) declined during October with 0.23 percent. Since year-end, the NAV per share has consequently increased by 1.21 percent. The performance in the Nordic corporate bond market was negative with increasing credit spreads and falling bond prices. The development of bonds from real estate companies was especially weak after Castellum and Heimstaden Bostad made two major issues and had to pay higher rates than expected to attract capital.
Positive returns from covered bonds from Länsförsäkringar Hypotek and Swedbank Hypotek has benefitted the fund this month. Bonds from Golar LNG Partners also developed well after the company presented a relatively strong quarterly report. In addition to good operational development, the company also announced that it will lower the dividend, which is positive from a credit perspective. The LNG freight market is currently very strong with the highest rates for over six years, which benefits the earnings of the company’s vessels operating on shorter contracts.
On the negative side one found, among others, bonds from Kungsleden that traded down in line with other real estate companies. The weak markets put pressure on most of the fund’s holdings with price declines for 37 of 53 holdings. The largest falls were noted for bonds from Dometic and the shipping company MPC Container, both with a drop of around 2.75 percent.
Com Hem and Enea left the portfolio, the former after the company announced a repurchase of the outstanding bonds prior to the merger with Tele2. The bonds from Enea were divested when more attractive investments were identified elsewhere.
A new investment was carried out in Swedish Elctromagnetic Invest (SEM), which is a manufacturer of components for engines and drivetrains. The company is specialized and possesses key competencies within its niche; products are often developed in cooperation with customers, resulting in long customer relationships and relatively good visibility on demand. The company has healthy margins and relatively stable earnings - the bond is expected to offer very good risk-adjusted returns. Among the Fund’s investments in shipping companies, a change was made when Borealis Finance was divested in favor of an investment in a FRN from Songa Containers with shorter maturity.
November was characterized by continued turbulence in the financial markets with generally declining risk appetite. Long government bond yields fell slightly when investors sought harbor in less risky assets. By the end of the month several of the major bourses turned and recovered at least some of the decline.
In the credit markets, the mood was gloomy as well with generally rising spreads and falling bond prices. The market balance was adversely affected by continued outflows from both European and US funds.
Many of the challenges that affected the markets negatively during October were also current during this month: the trade war between the US and China, the discussions on Brexit, and budget negotiations in Italy.
The Federal Reserve decided during the month to keep its key rate unchanged and continued to signal for a rate hike in December. In a speech by Fed’s chairman Jerome Powell, it was stated that the current key rate of 2.00-2.25 percent is “just below” the neutral level. The wording was slightly softer than expected and could mean that the Fed will not raise interest rates as much in the next year as the market previously predicted.
In Sweden, inflation was reported to fall back slightly in October and once again it is some tenth below Riksbanken’s forecast. In addition, GDP statistics showed that economic activity declined by 0.2 percent in the third quarter, which was the first decline since 2013. The statistical reports in November can be seen as arguments against a December hike from Riksbanken. A hike in December is still probable, but the increasing numbers of signals that the business cycle is turning reduces the likelihood that Riksbanken will be able to raise interest rates more than marginally in the coming years.
Portfolio Manager Coeli Nordic Corporate Bond Fund
| Inception Date | 2014-06-18 |
| Management Fee | 0.5 % |
| Performance Fee | N/A |
| Risk category | 2 of 7 |
DISCLAIMER. The information provided here does not constitute professional financial advice. Past performance is not a guarantee of future returns. The price of the investment may go up or down and an investor may not get back the amount originally invested. The key investor information document (KIID) and prospectus are available at www.coeli.se.