Portfolio Manager comment Coeli Likviditetsstrategi January 2022
Likviditetsstrategi advanced with 0.04% during January. The year began with falling stock prices and rising government bond yields. The risk appetite was negatively affected by high inflation, signals from the Federal Reserve about upcoming interest rate hikes, a continuation of the pandemic and threatening remarks from Russia around Ukraine and the security policy framework in its immediate area. Corporate bond markets in the US and Europe developed weakly with rising credit spreads. Despite the weak sentiment, there was relatively high activity in the primary market. Nordic corporate bonds withstood the turbulence with stable to moderately falling prices.
Among the month’s largest contributors were the ship leasing companies SFL Corp and Ocean Yield, which benefited from strong reports from shipping companies and continued high day rates for container vessels. The chemical tanker shipping company Stolt-Nielsen also made a positive contribution after presenting a solid year-end report. The company reported declining leverage and described the outlook for the coming quarters in positive terms.
The credit management company Intrum reported a sharply improved operating profit and a strong cash flow for the fourth quarter. Investments in portfolios with non-performing receivables increased during the quarter, which provides support for the company’s plan for continued growth. Despite the positive report, bonds from Intrum developed weakly and fell in line with the European market.
Covered bonds also had a negative impact on earnings as they declined as a result of rising market interest rates.
During the month, a green bond from the real estate company Corem was added to the portfolio. Corem has recently acquired its industry peer Klövern, the merged company has a property portfolio valued at just over SEK 78 billion tilted towards offices and logistics. Corem is judged to have adequate financial targets and has a clear goal of reaching a public investment grade rating from one of the major rating agencies.
Divestments were made of bonds from NP3 Fastigheter, SBB i Norden and Ocean Yield, among others. With the sales, the fund’s share of cash holdings increased, and the risk level decreased slightly.
The year started with an eventful and not least volatile month, in which a significant risk of an armed conflict in Ukraine, as well as concerns about a less expansionary policy, left their mark on the financial markets.
After Russia deployed 100,000 troops along the Ukrainian border, relations between the West and Russia continued to be worsened in January. President Biden has warned that Russia “must do something” and has become even clearer that in the event of an invasion, economic sanctions will be significant. The United States has also ordered the families of embassy staff in Kiev to return home, indicating concern about an armed conflict.
As previously communicated, the Federal Reserve (FED) guided in its interest rate announcement for winding up of quantitative easing measures, and that it is beginning to be timely to raise the fed funds rate. Uncertainties in the market have largely been about the pace at which interest rate hikes will be initiated and when the central bank intends to reduce its balance sheet. Net purchases of financial assets are expected to be completed in March. CPI inflation in the US was measured at 7.0% in December, the highest level since 1982. However, the monthly increase was slightly lower than in the previous month, which may indicate that the pace of price increases will slow down in the coming months.
From the European side, the ECB expressed concern about overvaluation in certain housing markets and is considering persuading bank regulators to restrict lending. On the inflation theme, the German CPI showed just over 5% in December and the German central bank expects continued high inflation largely due to bottlenecks in the supply chain.
Swedish CPIF inflation for December showed an increase of 4.1% at an annual rate, which was significantly higher than the Riksbank’s forecast of 2.9%. Excluding energy costs, however, inflation was noted at more modest 1.7%.
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 -0.03%. The Swedish ten-year government bond was quoted at the end of the month to 0.40% and has thus risen by 11 basis points during the month. The US ten-year government bond was quoted at the end of the month at 1.79%, 27 basis points higher than at the end of the previous month.
Coeli Likviditetsstrategi R SEK
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