Portfolio Manager comment Coeli Likviditetsstrategi May 2022

Likviditetsstrategi declined with 0.59% during May. Since year-end, the NAV per share has consequently decreased by 1.48%. May began with continued volatile markets with generally falling prices for risky assets and long-term government bonds. Growing concerns about an impending global economic downturn later led to a fall in government bond yields. During the last week, a recovery was seen on both the equity markets and the corporate bond market. The Nordic credit market, which withstood turbulence relatively well earlier in the spring, developed somewhat weaker than the rest of Europe.

The conditions were challenging during the month and most of the bonds in the portfolio fell in value during the month. Minor positive contributions were, however, seen from defensive issuers such as the insurance companies Gjensidige and Tryg.

Investments in commercial papers also made a small positive contribution during the month. Replacements of of maturing commercial papers now take place at higher yield levels, due to the recent rise in interest rates, which contributes to raising the fund’s current return.

On the negative side were mainly bonds from real estate companies such as Samhällsbyggnadsbolaget i Norden, Balder and Heimstaden. The sector continued to trade weakly during the month, concerns about rising interest rates and a tighter financing market are considered to have had a negative effect on sentiment. The fund’s exposure to real estate consists mainly of issuers with holdings in segments with relatively lower risk, such as residential and community services properties as well as issuers with focus on warehouse and logistic properties. All real estate companies in the portfolio are deemed to be on a solid footing and have good capabilities to parry more challenging conditions in the coming years.
No significant portfolio changes were implemented during the month.

May continued with the theme of high inflation and interest rate hikes, in addition, the Federal Reserve’s (Fed) chairman Powell was re-elected to a new four-year term. The Fed chose to raise the key interest rate by 50 basis points during the month to the range of 0.75 – 1.0%. The Fed also stated that they will initially reduce their balance sheet from June by USD 47.5 billion per month. US inflation statistics showed CPI of 8.3% in April.

During the month, ECB Governor Christine Lagarde again stated expectations of a rate hike from the central bank during the summer, however, only after they have completed net purchases of bonds. In line with this, the minutes of the last ECB policy meeting showed members’ concerns about persistently high inflation. Preliminary incoming statistics for April showed an inflation rate of 8.7% in Spain and 7.9% in Germany. Thus far above the ECB’s target.

Inflation statistics from Sweden showed CPIF of 6.4% in April, where the Riksbank had expected 5.9% in its latest forecast. At the same time, growth figures from Statistics Sweden over the first quarter showed rising GDP of 3% year-over-year, compared with the fourth quarter, however, GDP fell by 0.8%.

Additional sanctions against Russia were imposed by the EU during the month, including imported Russian crude oil and refined fuels. The Russian bank Sberbank will also be shut out of the Swift payment system. The Russian demand for payment in roubles has led to the Finnish state-owned gas importer Gasum, which refused the payment method, to see its gas flow cease. The Danish energy company Örsted also communicates an increased risk of being cut-off from Russian gas supply in the future, as they also refuse to pay in roubles, the company expects to source gas through the European market instead.

During the month, the European and Nordic credit markets showed somewhat rising credit spreads in both the high-yield and investment-grade segments. Stibor 3-months was noted at 0.45%. The Swedish ten-year government bond was quoted at the end of the month to 1.51%. The US ten-year government bond was quoted at the end of the month at 2.85%, 4 basis points tighter than at the end of the previous month.