Portfolio Manager comment Coeli Likviditetsstrategi September 2020
Likviditetsstrategi advanced during September with 0.27 percent. Since year-end, the NAV per share has consequently increased by 0.82 percent. The development in the corporate bond market was initially positive; however, the direction turned in the middle of the month, in line with the global stock markets. The risk appetite was negatively affected by the increased spread of the coronavirus in Europe and, as a result, reintroduction of restrictions. The sentiment was further hampered as negotiations on further fiscal stimulus in the United States stalled due to the stalemate in Congress ahead of this autumn’s presidential election, which in itself risks becoming a nerve-wracking story.
In the Nordic primary market, there was high activity with several transactions, of which a couple were from first-time issuers. Most issues from the more established companies were heavily oversubscribed and pricing was adjusted in favour of issuers. Towards the end of the month, activity declined due to increasing market volatility and the upcoming reporting period.
Among the month’s largest contributors was Magnolia Bostad, which issued a new green bond at the same time as a bond with a shorter maturity was repurchased. In connection with the issue, the company guided that demand for rental housing properties remains good, which is expected to lead to more project sales towards the end of the year.
Bonds from Klarna Bank also developed strongly after the company carried out a major share issue in September with the aim of continuing its international expansion, especially in the United States. In the issue, Klarna is valued at over $ 10 billion, making the company one of the most highly valued privately owned fintech companies.
On the negative side were mainly bonds from Intrum. Intrum was negatively affected partly by the company issuing new bonds in two rounds during the month and by concerns that the reintroduction of restrictions in Europe will lead to a lower rate for collections on the portfolios of non-performing loans.
During the month, a new investment was made in bonds from Dometic, which supplies refrigerators and equipment for recreational vehicles and boats. The company is appreciated for the high share of sales in aftermarket and service. In addition, the American market for recreational vehicles, which is important to the company, is forecast to grow sharply over the next year. Bonds from the forestry company SCA were also added to the portfolio. SCA has very solid finances and shows stable margins as a result of the integrated business model based on a large ownership of forest land.
Other changes in the portfolio included a switch of the holding of short dated bonds from Magnolia Bostad to bonds maturing in 2022 and a slight reduction in the holding of bonds from Mowi.
During the month, the Swedish Riksbank issued a monetary policy protocol in which the central bank continues to emphasize that, in addition to extensive stimulus from monetary policy, long-term fiscal policy support is also needed. The Swedish central bank points out that the measures it has taken will keep “low interest rates and a large amount of liquidity for the foreseeable future”. The central bank also allows for the interest rate to be lowered if confidence in the inflation target is considered threatened. At the same time, the Riksbank made its first purchases in the corporate bond market during the month. A total of SEK 300 million has been purchased through the secondary market and the Riksbank, in addition it was stated that the extended quantitative easing program announced during the summer will continue as planned.
Statistics on Swedish unemployment for August were published during the month and showed 9.1 percent in unemployment, which is 2.1 percentage points higher than in August 2019. Similar statistics were also provided for US unemployment in September, where unemployment is noted at 7.9 percent, which is lower than the August figure of 8.4 percent. 661,000 new jobs were created during the month, which is lower than the consensus estimate that had expected 850,000 new jobs. At the same time, the US Purchasing Managers’ Index for manufacturing fell more than expected to 55.4 in September, with a previous monthly outcome of 56.0. An index figure above 50 indicates increased economic activity compared with the previous month, hence the economic recovery is expected to progress, albeit at a lower pace than expected.
Governments have continued with an expansive fiscal policy during the month. For instance, the Swedish government presented a comprehensive budget bill with reforms in the amounts of SEK 100 billion in 2021 and SEK 85 billion in 2022. The proposal covers investments across the board with contributions to welfare, tax cuts for jobs and incentives for green investments to name a few. The French government also came out with a comprehensive recovery plan of EUR 100 billion, which is 4 times larger than in the financial crisis of 2008. This recovery plan also has large elements of green investments, closer to EUR 30 billion will go to the purpose, including developing a domestic hydrogen industry.
The Brexit negotiations took a step in the wrong direction during the month when the British government produced a bill considered to be in breach of the exit agreement with the EU. As is well known, the United Kingdom must comply with the exit agreement to avoid a hard Brexit. Hence, there is no end in sight to the negotiations.
The European and Nordic credit markets showed a mixed picture for credit spreads. The investment grade segment showed slightly declining credit spreads while the high-yielding segment showed slightly rising credit spreads. Stibor 3-month again went below 0.0 percent and was noted at -0.05 percent at the end of the month. The Swedish ten-year government bond also fell below 0.0 percent and was quoted at the end of the month at -0.04 percent. Overall, falling interest rates were noted for 10-year government bonds, where the German stood out by falling by 16 basis points and was noted at -0.56 percent.
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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.