Portfolio Manager comment Coeli Likviditetsstrategi May 2019

Likviditetsstrategi advanced with 0.10 percent during May. Since year-end, the NAV per share has consequently increased by 0.68 percent. The Nordic corporate bond market withstood the turbulence in the equity markets relatively well, with generally stable credit spreads. Activity in the primary market remained high with plenty of new issues and the appetite for new bonds seems to be strong.

The largest contributor in May was Samhällsbyggnadsbolaget i Norden, whose bonds continued to be in demand after the company received investment grade ratings in April. During the month, the company reported several property acquisitions and carried out additional bond issues, where the proceeds will be partly used to replace existing bank loans. The fund participated in one of the issues and the maturity of the exposure to the Samhällsbyggnadsbolaget was thereby extended by about one year.

Bellman Group was also found among the major contributors after the company’s quarterly report exceeded expectations. As a result of acquisitions, significant revenue growth and a doubled operating profit were reported.

In principle, all holdings contributed positively to the month’s earnings. The exception was Melin Group, which fell slightly and thus gave a minor negative contribution. This without any significant news being released from the company.

During the month, the fund participated in a new issue of bonds from the ship leasing company Ship Finance. The bond is expected to offer good return opportunities thanks to a robust business model that provides extremely stable cash flows while the company is facing interesting growth opportunities. In addition, newly issued bonds from the telecom company Millicom were added to the porcelain portfolio and the holding of bonds from Norwegian Austevoll was increased. Aluminum company Gränges left the portfolio as the share of cyclically sensitive companies was reduced. The holding of bonds from Icelandair was also reduced when the company carried out a repurchase, the remaining holding is expected to be redeemed this summer.

May started off with an escalation of the trade war between the US and China with Trump’s threats of additional tariffs on Chinese goods. According to analysts, a trade agreement between the two countries was already accounted for and this set the tone on the market for the entire month. Hence, the S&P 500 fell by 6.6 percent, the second worst month of May since the 1960s. In mid-May, the trade agreement discussions fell through and new negotiations between senior diplomats are yet to be planned. At month-end, the US subsequently imposed tariffs of 25 percent on goods with equivalent value of USD 200 billion. China countered with increased tariffs on goods corresponding to a value of USD 60 billion.

Europe also had an eventful month with an EU election and continued Brexit problems. Theresa May’s proposal for a withdrawal agreement has been voted down by the British Parliament three times and in a fourth attempt May opened for a new referendum. This was the last straw for the Brexit supporters in her party Tories and meant the end of her period as the British Prime Minister. May will remain in her position until a new leader has been appointed, which is expected to occur in the end of summer. There is now an inherent risk that advocates of a no-deal Brexit advance their positions in the party.

The Italian party Lega, with leader Matteo Salvini, had a favorable result in the EU election. Salvini has promised in the elections to lower taxes in the country and try to transform the EU budget rules in order to lower unemployment in the country. Italy is already facing high government debt and had earlier this year issues with getting the state budget approved by the EU commission. Further budget discussions between the country and EU is to be expected from here on.

Swedish GDP rose by 2.6 percent in the first quarter of 2019 compared to the same quarter in 2018, which was higher than analyst estimates. However, Swedish domestic demand was slightly weakened with a decline in imports by 0.7 percent. It was primarily the household demand that decreased in the first quarter.

The Nordic and European credit markets showed rising credit spreads during the month, breaking the trend from prior months. Stibor 3-month rose once again to 0,0 percent during the month and long-term government bonds showed a positive trend with falling interest rates. Most notable is the German 10-year government bond, where the yield fell below zero and is now trading at -0.2 percent.