Portfolio Manager comment Coeli Likviditetsstrategi April 2022
Likviditetsstrategi advanced with 0.14% during April. Since year-end, the NAV per share has consequently decreased by 0.89%. The sentiment in the corporate bond market was generally negative in April with rising credit spreads for both investment grade and high yield credits. Compared with the rest of Europe, the Nordic market showed a more sideways development. Continued rising interest rates, where particularly short-term interest rates rose markedly during the month, once again put pressure on returns in the bond market.
The risk appetite was weighed down by stronger guidance on the forthcoming tightening of monetary policy by the Fed and the ECB. In addition, there were indications of lower economic growth in the coming quarters: partly linked to new outbreaks of Covid-19 in China, and partly to the fact that households’ purchasing power and disposable income are deteriorating due to high inflation.
Among the month’s major positive contributors were Norske Skog and Ocean Yield. Norske Skog released a quarterly report that showed a strong improvement in profitability with the best operating result in a decade. The outlook for the coming quarters is positive with a tight market balance for publication paper, while the new energy facility in Bruck strengthens the company’s self-sufficiency in energy and contributes to reduced fossil emissions. Bonds from Ocean Yield recovered from previous declines earlier in the year without any significant news being presented.
Bonds software distributor and IT consultancy Crayon also made a positive contribution. Crayon’s most important partner, Microsoft, reported solid sales growth during the first quarter and guided for continued strong demand.
On the negative side were primarily fixed-rate bonds from Balder, Telia and Intrum. These fell in value mainly due to generally rising market interest rates. Intrum reported sales for the first quarter that were in line with expectations but an operating profit that was slightly weaker due to continued weak margins within credit management services. However, cash flow was strong and Intrum reiterated its forecast that leverage will decrease during the year. Negative impact on the result also came from covered bonds.
During the month, the holdings of commercial papers in the portfolio increased to just over 35%. With rising short-term interest rates following the Riksbank’s interest rate hike, investment opportunities in commercial papers are expected to improve in the coming months. Divestments were made of, among others, subordinated bonds from the insurance companies Gjensidige and IF.
During the month, the Swedish centralbank chose to raise its main policy rate by 25 basis points to 0.25%, which was the first change since 2019 and the first time since 2014 that Sweden has a policy rate above 0%. The Riksbank’s own forecast shows a further 2 to 3 hikes in 2022. The Executive Board also announced that the rate of securities purchases will be reduced during the second half of the year to SEK 37 billion. Inflation data from Statistics Sweden for March showed an increase in the CPIF of 6.1%, an increase from 4.5% in February and the highest rate of increase since 1991.
The month has continued to be marked by the war between Russia and Ukraine, where the EU has introduced a fifth sanctions package aimed at hitting companies and individuals who played a role in the invasion. In addition, sanctions are aimed at hitting the Russian coal industry, EU imports represents a quarter of Russia’s total coal exports. Russia’s Ministry of Finance estimates that the Russian economy will decline by about 10% during the year, where the World Bank expects 11.2% in 2022. During the month, the World Bank lowered growth forecast for the global economy from 4.1% to 3.2% in 2022 with lower growth in Europe and Central Asia as a reason. Higher food and energy prices are also expected to hit more developing countries.
As expected, the ECB chose to leave interest rates unchanged, and the plan for a reduction in bond purchases was repeated. ECB Governor Lagarde commented that the central bank intends to end bond purchases during the third quarter and thereafter can an interest rate hike become an alternative, later in the month she adjusted her statements slightly where she pointed out that monetary policy will depend on incoming statistics. Inflation for the euro area in March showed an increase in prices of 7.5%, where analysts expected 6.7%, driven, among other things, by high energy prices. During the ECB meeting several members pointed out that the high inflation readings suggest a rapid policy normalization, it remains to be seen when in 2022 this will take place.
During the month, the European and Nordic credit markets showed rising credit spreads in both the high-yield and investment-grade segments. Stibor 3-months was noted at 0.36%. The Swedish ten-year government bond was quoted at the end of the month to 1.71% and has thus risen by 51 basis points during the month. The US ten-year government bond was quoted at the end of the month at 2.89%, 57 basis points higher than at the end of the previous month.
Coeli Likviditetsstrategi R SEK
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