Portfolio Manager comment Coeli Likviditetsstrategi October 2021

Likviditetsstrategi detracted with 0.04 percent during October. Since year-end, the NAV per share has consequently increased by 1.87 percent. Risk appetite in the equity markets returned in October with generally rising stock prices. In the credit markets, however, sentiment was more cautious with moderately rising credit spreads. Inflation was reported at relatively high levels, largely because of bottlenecks in global supply chains and rising energy prices, which contributed to short-term market interest rates rising during the month.

The largest contributor of the month was Gjensidige Forsikring, which reported a record-breaking insurance result. Adjusted for currency changes, premium income grew by approximately 9 percent and the company guided for continued good conditions into next year. Bonds from Norske Skog also developed well after the company released a quarterly report with an operating profit that exceeded expectations. Furthermore, Norske Skog reported that financing had been secured for the company’s two projects for conversion from newsprint to containerboard.

On the negative side one mainly found so-called “high-beta bonds” from, among others, Balder and Intrum. The outlook for Balder’s credit rating was lowered to negative after the company announced that it would place a mandatory bid for Norwegian Entra. Intrum presented a quarterly report that was on the weaker side with both revenues and operating profit being lower than expected. Leverage increased marginally compared with the previous quarter, however, Intrum still has a mid-term target that aims for significantly lower leverage towards the end of the year.

During the month, a few new investments were made in bonds from Vestum, ALM Brand, Nordax and United Camping. Vestum is a listed Swedish acquisition-driven conglomerate focused on niche companies in construction services and infrastructure. The company group consists of 24 business units, which provides some diversification, profitability is judged to be healthy and indebtedness moderate. Nordax is a Swedish bank with a focus on private loans, mortgages and equity release credits. Nordax is acquiring Bank Norwegian and will thus create the largest niche bank in the Nordic region with leading positions in consumer loans and credit cards. The merged unit is judged to be able to deliver a more stable result and provide potential for cost synergies that can improve an already good profitability in the long run.

Divestments took place of, among others, bonds from Storskogen and Öyfjellet Wind. Storskogen was listed on the Stockholm Stock Exchange at the beginning of the month, the investment thesis in the company was partly linked to the company being listed in 2021. With the listing in place, the entire holding was sold with a solid return contribution over the entire holding period. The bonds from Öyfjellet Wind were sold after a surprising ruling in Norway where two wind farms lost their concessions when the permit process was found to conflict with the rights of the indigenous Sami population. The ruling brings significant uncertainty for land-based wind power in Norway in areas where the Sami conduct their traditional reindeer husbandry, the sale took place to minimize exposure to this difficult-to-assess risk.

A large question in the beginning of the month was the US federal debt ceiling and how that would be solved. Speculations regarding a number of unconventional methods were raised, but by mid-october the House of Representatives came with a temporary solution of a marginal increase. The increase means that the debt ceiling discussion will arise again in December.

In the latest minutes protocol of the meeting of the Federal Reserve (FED), the members indicated that they were ready to reduce the purchases of assets in November and completely halt by the beginning of the second half of 2022. This is likely in response to figures showing core inflation in excess of 4.0 percent recently. During the month, the New York Fed’s survey of household inflation expectations one year ahead, stood at 5.3 percent, which is the highest forecast since the statistics first were introduced.

During October, the European Central Bank (ECB) left the key interest rate unchanged at 0.00 percent, which was in line with market expectations. Lagarde also announced that the market should expect the PEPP asset purchase program to end in March 2022, previous indications were that the program will run until at least March 2022. It is also interesting that Lagarde was clear in statements during the month that the current inflation rate should be considered temporary and that The ECB should not overreact to this with a premature tightening of monetary policy as this may hamper economic recovery.

During the month, the European Commission also carried out the largest ever green issue of EUR 12 billion to fund the EU recovery package. Interestingly, the transaction was oversubscribed eleven times. This is the fifth issue under the framework, where a total of EUR 68.5 billion has been borrowed. The expected total volume in 2021 is EUR 80 billion.

During the month, the European and Nordic credit markets showed widening credit spreads in both the high-yield segment and the investment-grade segment. Stibor 3-months was noted at -0.09 percent. The Swedish ten-year government bond was quoted at the end of the month at 0.39 percent and has thus increased by 1 basis point during the month. The US ten-year government bond was quoted at the end of the month at 1.55 percent, 3 basis points higher than at the end of the previous month.