Portfolio Manager comment Coeli Likviditetsstrategi February 2022
Likviditetsstrategi declined with 0.79% during February. Since year-end, the NAV per share has consequently decreased by 0.75%. The negative trend from January continued during the beginning of February. Market developments later in the month came to be dominated by the tragic course of events in Ukraine and Russia’s full-scale invasion of the country on 24 February. The outbreak of war brought further pressure on risky assets with falling prices for both equities and corporate bonds. At the same time, energy prices, both oil and gas, were seen to rise sharply. The sharp deterioration in the security situation and increased uncertainty also led to a rise in the price of gold towards record levels and strengthening of currencies such as the US dollar and the Swiss franc.
With the significantly weakened risk sentiment, credit spreads rose significantly both in the Nordic region and in the rest of Europe. At the same time, long-term government bond yields rose slightly during the month, which put pressure on the generally more interest-sensitive investment grade segment in Europe.
Among the positive contributors of the month were the insurance company Protector and short-term bonds from the credit management company B2 Holding. Protector’s financial statements showed good premium growth during the year and an improved actuarial result, in addition, the solvency ratio was strengthened well above the target level. B2 presented a strong year-end report with recoveries over the forecast and a declining leverage. During the fourth quarter, B2 increased its investments, and the company guides for continued good investment opportunities in 2022.
The largest declines were observed for bonds from real estate companies such as SBB i Norden and Balder. In addition to the general market downturn, SBB came under pressure after a (in)famous hedge fund published a report that classified the company as non-investable. However, the quality of the report was highly deficient as it contained numerous factual errors and insinuating allegations without objective grounds. Both Balder and SBB presented their financial statements, which showed a sharp rise in property management results and an improved interest coverage ratios.
Relatively large declines were also noted for bonds from insurance companies such as ALM Brand and If. Covered bonds also had a negative impact on the result due to rising market interest rates and broader credit spreads in this segment as well.
During the month, the fund participated in a new issue of bonds from Nordic Entertainment Group (Nent), which is primarily active in TV and video streaming services in the Nordic region. Two thirds of Nent’s sales are in the form of subscriptions to streaming services (Viaplay) and traditional pay-TV packages. The high level of subscription revenue provides stable cash flow generation and revenue visibility. To this was added a bond with a short remaining term from Dometic, a manufacturer of equipment for camping and outdoor life. Additional investments were made in, among others, the insurance companies Gjensidige and If.
The main event of the month was Russia’s invasion of Ukraine, which completely dominated the news flow towards the end of the month. After the Donetsk and Luhansk regions were recognized as independent states by Russia and Vladimir Putin later approved the military invasion of Ukraine, Western response have been tilted towards major economic sanctions. Among other things, the sanctions were directed at Russian banks and Russia’s access to the capital and financial markets. The EU and the US have also imposed personal sanctions on oligarchs and members of the Russian parliament. As proof of the historical support behind the sanctions, Switzerland, known for its neutrality, announced that it would act in accordance with them. S&P has since lowered Russia’s credit rating in two rounds down to CCC- from the previous BBB-. The invasion has also put pressure on energy prices, especially in Europe where forward prices show that German electricity now costs about 10 times more than in 2019. This may give a continued boost to the already high inflation, which creates a major problem for the European Central Bank (ECB).
US core inflation was measured at 5.2% in January compared with the same month last year, the highest rate since April 1983. At the same time, labor market statistics showed a continued strong increase with 467,000 new jobs outside the agricultural sector, against expectations of 150,000.
This month’s inflation statistics for the euro area showed an inflation rate of 5.1% in January. Core inflation was noted at 2.6% versus the expectation of 1.9%. The ECB left interest rates unchanged, expressing concern about rising inflation. The war in Ukraine is expected to pick up the inflation rate in the short term as a result of rising energy costs.
High inflation figures were also noted in Sweden in January, where the important target variable KPIF excluding energy rose to 2.5%, which is the highest listing since 2009.
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 -0.07%. The Swedish ten-year government bond was quoted at the end of the month to 0.54% and has thus risen by 14 basis points during the month. The US ten-year government bond was quoted at the end of the month at 1.83%, 4 basis points higher than at the end of the previous month.
Coeli Likviditetsstrategi R SEK
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