Portfolio Manager comment Coeli Likviditetsstrategi July 2019
Likviditetsstrategi advanced with 0.14 percent during July. Since year-end, the NAV per share has consequently increased by 0.99 percent. During the month the performance in the corporate bond market was relatively stable in both Europe and the Nordic region. However, towards the end of the month, volatility increased somewhat with slightly wider credit spreads mostly in the high yield segment. Investors’ risk appetite seems to be dampened by the fact that the US-China trade negotiations appear to have broken down and the US has once again announced increased tariffs.
The largest contributor in July was Intrum, which presented a quarterly report that showed margin improvements and slightly lower growth than expected. The company reiterated its growth and leverage goals and launched a cost savings program to support the development. The re-insurance company Sirius International also made a significant contribution with stable development for the company’s subordinated bonds.
On the negative side was mainly consumer credit company 4Finance, whose bonds continued to detract, without any significant news from the company.
Few changes were made to the portfolio during the month as activity was low in both the primary and secondary markets. The holding of bonds from 4Finance and Magnolia Bostad was increased. In addition, the holding of several commercial papers was increased.
Developments in the financial markets in July were characterized by increasing uncertainty about the prospects for the US-China trade negotiations, the risk of a no deal Brexit and growing tensions in the Middle East.
In Europe most economic indicators continued to fall, still pointing to a weaker economy. During the month, the ECB opened for interest rate cuts and other stimulus measures later in the autumn. Weak statistics and the possibility of an even more expansionary monetary policy contributed to putting pressure on long-term government bond yields: the German 10-year government bond was traded at a low of -0.50 percent and the 30-year bonds were indicated below 0 percent. The yield on the Swedish 10-year government bond also fell and was noted at -0.20 percent at the end of the month.
In the US, the Federal Reserve chose to cut interest rates by 0.25 percent. The interest rate cut was expected, but communication from the Fed was less “dowish” than expected, after which short US government bond yields rose and the US dollar strengthened.
In July, the Riksbank announced that the repo rate and interest rate forecast will be left unchanged. The Riksbank thus continues to signal that an interest rate hike is likely towards the end of the current year or early next year. Inflation in Sweden was reported slightly lower than earlier this spring, in support of Riksbanken’s forecast, it is noted that underlying inflation, adjusted for energy prices, is rising slightly and is now just below the target of 2 percent. Growth in Sweden was reported slightly lower than expected, with an increase of 1.4 percent during the second quarter. The National Institute of Economic Research’s barometer indicator continues to fall, pointing to a slower pace of the economy in the coming quarters.
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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.