Portfolio Manager comment Coeli Likviditetsstrategi February 2019
Likviditetsstrategi advanced with 0.15 percent during February. Since year-end, the NAV per share has consequently increased by 0.28 percent. The atmosphere of the corporate bond market remained positive during the month, with increasing activity in the primary market with new issues from Klövern, Nobina, Volvo Cars and Kungsleden, among others. However, the issued volume during the year is so far clearly at a lower level than last year, which supports the prices in the secondary market.
The largest contributor of the month was the aquaculture company Marine Harvest, which presented their annual report showing a trend of stable earnings and continuation of very good cash flow. The company assesses the outlook for 2019 as good with anticipated growth in volume and continued favorable pricing.
Also, bonds of wind power company Arise developed well after the company revealed its results for 2018 – both sales and earnings improved significantly. At the end of the month Arise also announced that a part-owned wind farm will be divested during the first quarter, which will give the company the opportunity to significantly reduce its debt. The real estate company Kungsleden was another major contributor with its solid annual report and a new issue of bonds.
On the negative side we have the reinsurance company Sirius International, whose bonds fell slightly after the company’s majority owner reportedly had problems with liquidity. However, the owners’ alleged problems do not affect the creditworthiness of Sirius since the company is independent with an independent board and activities that are regulated by authorities mainly in Sweden, the US and Bermuda.
During the month, new investments were made in floating rate bonds from Stora Enso and commercial papers from among others the confectionery company Cloetta and the engineering consultant ÅF. Bonds with short maturities from Samhällsbyggnadsbolaget and Kungsleden were exchanged for ditto with approximately one year longer maturities. The maturity extensions that contribute to an increased risk in the portfolio were balanced by the increase in the proportion of corporate certificates. The fund’s risk utilization is considered to remain below average over the recent years.
In February it became clear the central banks have become more cautious in their comments regarding future rate hikes. The American Federal Reserve decided to pause its expected rate hikes and continues to stress the importance of patience going forward. Fed evaluate the global economy with a higher degree of uncertainty than before – lower growth in China and Europe, tensions in trading, a volatile stock market and further risks for a government shutdown in the U.S, are mentioned as examples of potential global risks. The dovish comments from the FED contributed to the S&P increasing by 11 percent so far this year.
During the month of February, the Swedish Riksbank left rates unchanged at -0.25 percent. The board notes how the economic trend has reached a phase with less economic growth, both in Sweden and globally. However, even if the growth rate in the economy is subdued, the level of economic activity is still strong and according to the Swedish Riksbank the expectations of inflation rates, close to 2 percent in the following years, has not changed.
From a Swedish perspective, GDP numbers for the fourth quarter of 2018 came in during the month. These figures showed a GDP growth of 2.4 percent compared to the same quarter in 2017, which is a considerable improvement than most analysts had expected. At the same time, the negative trend from previous quarters was broken. The Swedish Krona increased on these figures by approximately 6 SEKcents versus the Euro and 4 SEKcents versus the U.S dollar.
During the past month the credit rating agency Fitch announced the sovereign debt rating of Italy, which was left unchanged. However, there was continued negative outlook and a reservation for the considerable sovereign debt levels and the lower GDP growth rate. The Italian government is now continuing an expansionary fiscal policy to increase the growth rate.
The Nordic and European credit markets have started the year strong with decreasing credit spreads and increasing bond pricing; thus, the decline from the fourth quarter in 2018 has almost been completely erased. The value of long-term government bonds has also shown a rising trend in the beginning of the year, where a US 10-year bond now returns 2.75 percent, a decrease from the roughly 3 percent in November 2018.
Notable is also the 3-month STIBOR, which has gone from a level of -0.5 percent before the Swedish Riksbank’s rate hike in December, to a current rate of -0,07 percent. This clear increase is positive for Swedish floating rate notes and money market instruments.
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