Portfolio Manager comment Coeli Likviditetsstrategi June 2022
Likviditetsstrategi declined with 1.88% during June. Since year-end, the NAV per share has consequently decreased by 3.33%. During June, risk appetite weakened significantly with continuously falling prices for most risky assets. The investor collective now seems to be worried that the tightening of monetary policy that is now taking place on a global basis will lead to an economic recession. In the corporate bond market, relatively large declines were noted as a result of significantly higher credit spreads, while short-term market interest rates continued to rise.
The Nordic credit market developed significantly weaker than the broader European market. Thus, the pattern of the Nordics lagging around larger market movements was repeated. Activity in the primary market was limited with few issues, secondary market trading was characterized by limited risk appetite and increased spreads between bid and ask prices. The price declines seem to have attracted some more opportune investors who helped to stabilize the market towards the end of the month.
During the month, real estate companies had by far the worst development with what in many cases must be described as imploding bond prices. Samhällsbyggnadsbolaget i Norden, Balder and Heimstaden Bostad are examples of companies with large volumes of outstanding Eurobonds that ended up in the line of fire when European investors seem to have completely lost confidence in how these companies will be able to handle increased financing costs in the coming years. There is no doubt that tougher conditions await the real estate companies, but the larger companies’ often long capital and interest rate fixing means that it takes time before the higher interest rates have full effect. With existing cash, granted credit lines in banks and current cash flows, the larger companies can also cope with a period with a closed bond market.
Except for commercial papers, more or less all the fund’s holdings had negative impact on the month’s result. Besides the real estate companies, the largest declines were seen for relatively liquid high-yield bonds from Millicom and Intrum, among others.
During the month, bonds from, among others, Klaveness Combination Carriers, United Camping and Dometic, were sold. The digital gaming developer Stillfront was added to the portfolio. Exposure to real estate companies was reduced by about one percentage point and amounted to just over 17% at the end of the month. Reinvestments of maturing commercial papers were made on an ongoing basis at higher levels of return.
In June the theme of high inflation and interest rate hikes from central banks continued. The US Federal Reserve (FED) raised its policy rate by 75 basis points. Forecasts from FED indicates another 175 basis points of hikes in total for the remainder of the year, which would mean a policy rate of 3.4% at the end of 2022. Earlier in the month, US inflation statistics were presented, in the form of CPI, which amounted to 8.6% at an annual rate, the highest in 40 years. Core inflation came in slightly lower at 6.0%, however above expectations.
As expected, the ECB chose to keep its policy rates unchanged during the month, but guides for future increases in the second half of the year. At the same time, the ECB announced that asset purchases under the APP will end on 1 July. Christine Lagarde (President of the ECB), reiterated in a speech at the end of the month that if the inflation outlook remains at the current level, two increases of 25 basis points are relevant during the ECB meetings in July and September.
By the end of the month, the Swedish Riksbank chose to raise the key interest rate by 50 basis points to 0.75%. This was the first time the Riksbank chose a double hike since 2000. The Riksbank also announced asset purchases to be halved during the second half of the year. Inflation statistics (CPIF) from Statistics Sweden showed inflation of 7.2% in May, which was above the Riksbank’s own forecast from the Monetary Policy Report in April of 6.3%.
At the end of the month Stibor 3-months was noted at 0.80%, 45 basis points above previous month-end. The Swedish ten-year government bond was quoted at the end of the month to 1.73%. The US ten-year government bond was quoted at the end of the month at 2.95%, 10 basis points wider than at the end of the previous month.
Coeli Likviditetsstrategi R SEK
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