Portfolio Manager comment Coeli Likviditetsstrategi September 2019
Likviditetsstrategi was unchanged during September. Since year-end, the NAV per share has consequently increased by 1.12 percent. The positive trend in the corporate bond market continued in September with generally stable credit spreads in Europe. However, slightly rising long-term interest rates held back the return. In the Nordic submarket, the sentiment was strong with high activity in the primary market, where primarily real estate companies carried out new issues.
The largest contributor in September was the ship leasing company Ship Finance, which continued its growth journey during the month through investments in three large tank ships. The company further benefits from rising day rates in most shipping segments, which reduces counterparty risk and enables profit splits from some of its charter agreements. Subordinated bonds from Länsförsäkringar Bank also developed favorably, without any significant news being presented by the company.
Bonds from Samhällsbyggnadsbolaget i Norden continued to develop well after the company announced new financial targets for the second time this year. The new goals also aim at two notches improved credit rating.
On the negative side Melin Group was once again found as bonds continued to detract after the company’s quarterly report was released at the end of the previous month. As a group, the fund’s holdings of covered mortgage bonds had a minor negative impact on earnings as a result of rising market rates.
During the month, a new investment was made in bonds from Gjensidige Forsikring, a Norwegian insurance company. Gjensidige is the market leader in non-life insurance in Norway and has an advanced market position in Denmark as well. The company is very well-capitalized and has stable profitability. The investment increases the fund’s exposure to non-cyclical issuers.
Federal Reserve (Fed), lowered its benchmark interest rate in September by 25 basis points. Jerome Powell, chairman of the Fed, highlighted that the American economy, especially the consumer part, is still strong with low unemployment levels, but there are risks on the horizon. These risks come foremost from a weaker global economic outlook and accelerating trade wars, especially after the new round of tariffs between the U.S and China. Fed pointed out that in the case of continued weaker data points regarding the American economy, the central bank has room for aggressive maneuvering. Fed’s benchmark rate interval is now in the range of 1.75-2.0 percent. Equity indices initially traded down on the announcement, but later recovered the same day while government treasuries were unchanged, indicating the announcement was in line with investor expectations.
The European Central Bank (ECB), chose in line with Fed to lower its deposit rate by 0.10 percent to -0.50 percent, while also restarting its quantitative easing program. The program consists of monthly purchases of bonds by EUR 20bn with start in November. ECB also eased some of the terms on long-term loans for banks and introduced a new tiering system, with intention to increase lending margins for banks in the union. The retiring ECB chairman Draghi, scheduled to leave by end of October, commented that combined with monetary easing, the Euro area also needs fiscal policy changes, mainly in terms of lower taxes and higher government spending. A continued slowing global economy was also among risks for the region the ECB pointed out.
During the month, the Swedish central bank, Riksbanken, left the repo rate unchanged at -0.25 percent. Also, the bank once again repeated its position for a rate hike by the end of this year or early next year and stated, “low global interest rates and continued declining global economic sentiment means the interest rate is expected to be raised in a slower pace than previous projections”. In other words, Riksbanken lower its projections for coming quarters, but still sees a positive repo rate in the third quarter of 2020 at 0.04 percent (the previous forecast was at 0.14 percent). The Swedish inflation figures, CPIF, for August was noted at 1.3 percent, which was a decline from the previous month of 1.5 percent and a tad lower than consensus expectations.
The Nordic and European credit markets showed a somewhat mixed performance during the month. The investment grade segment of the market showed slightly increasing credit spreads, while the high yield segment initially showed falling credit spreads; however, in the latter parts of the month spreads were rising. Stibor 3-month once again fell through 0.0 percent and was trading at -0.07 percent by the end of the month. 10-year government bonds showed a negative trend with higher interest rates in all of our closest markets.
|Performance in Share Class Currency||1 Mth||YTD||3 yrs||Since incep|
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.