Portfolio Manager comment Coeli Likviditetsstrategi December 2019
Likviditetsstrategi advanced during December with 0.11 percent. Since year-end, the NAV per share has consequently increased by 1.19 percent. The year ended on a strong note in the corporate bond market as the strong risk appetite from November remained, bringing credit spreads somewhat tighter. Initially, activity in the primary market was high, but declined towards the end of the month.
Intrum was among the major contributors, which carried out a refinancing of parts of the company’s bank loans during the month. The new loan facility is larger and with a longer maturity than the previous one, which strengthens the company’s liquidity profile. Bonds from the consumer credit company 4Finance also developed well thanks to growing interest and demand from investors, which provided support for bond prices.
Bonds from Heimstaden Bostad were positively affected by news that Folksam and KPA Pension were entering as the new owners in the company through a private placement. In total, Heimstaden Bostad receives more than SEK 7 billion in the share issue and this can be seen as a step forwards towards the company’s ambition to achieve a higher credit rating.
On the negative side one found the Norwegian ferry company Fjord1, whose bonds fell somewhat after the principal owner acquired more shares in the company and announced its intention to merge the company with another company, which is fully owned by said principal. A merger could cause a deterioration of Fjord1’s financial position; also, the proposed transaction causes some concern about how the governance is exercised and whether the interests of minority shareholders and bond investors are best looked after. As a group, covered bonds made a minor negative contribution due to rising market interest rates.
During the month, a new investment was made in a covered bond from Svensk Hypotekspension, Sweden’s leading player in capital release credits. The real estate company Sagax issued new bonds with maturity in 2023 and parts of the fund’s holdings of bonds from the company with shorter maturities were exchanged for these. Mariefjärd, a wholly owned subsidiary of Klövern, left the portfolio when the bonds were early redeemed.
At the last meeting of the year the Swedish Riksbank chose to raise the interest rate by 25 bps to 0 percent. Thus, the Swedish economy saw an end to a monetary policy with negative interest rates, which the country has had since February 2015. The interest rate path was left unchanged. This means that the Riksbank is foreseeing the next rate hike at the end of 2022; i.e., almost three years with 0 percent interest rate. A comment made by the central bank states that the Swedish economy is leaving a business cycle that has been unusually strong to a more normal phase, but with continued growth.
During the month, the United Kingdom held a general election; it was Boris Johnson’s Tories with the slogan “Get Brexit done” versus Jeremy Corbyn’s Labour, which were more focused on the NHS and the welfare of the UK. Based on the votes, the Brits were undeniably tired of Brexit and voted for Boris Johnson by a wide margin. Tories are now promising to implement Brexit before January 31st. However, this means that nothing significant will happen immediately, the UK will continue to obey EU laws. New discussions between the EU and UK will commence in order to reach a Brexit deal. If no agreement is in place before the end of 2020, the country will leave the EU without a trade agreement, a so-called hard Brexit.
Similarly, the trade conflict between US and China has come closer to being solved as the two parties agreed on a phase one agreement. The agreement is planned to be signed mid-January 2020. The intention with the phase one deal is to annul the planned tariff increases from December and to reduce the tariff hikes from September 1st by half. Also, China undertakes to purchase US agricultural products over a two-year period. Continued discussions for a phase two agreement are thus awaiting.
Federal Reserve (Fed) chose to leave the interest rate unchanged at an interval of 1.5-1.75 percent, which was expected by the market. The head of Fed, Jerome Powell, commented that the US economy is well positioned and that the outlook remains favorable. Also, as expected the ECB chose to leave interest rates unchanged. ECB foresees interest rates on the same level or lower until inflation is closer to its target.
During the month, the Nordic and European credit markets had falling credit spreads in both investment grade and the high-yield segment. Stibor 3-month was noted at 0.15 percent at the end of the month. The Swedish 10-year government bond was noted by the end of the year at 0.14 percent after having been positive for the entire month.
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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.