Portfolio Manager comment Coeli Nordic Corporate Bond Fund I-SEK February 2021

Nordic Corporate Bond Fund (Class I) advanced during February with 0.33 percent. Since year-end, the NAV per share has consequently increased by 1.52 percent. As long-term US government bond yields rose, risk appetite in both equity and credit markets abated, with rising volatility as a result. Corporate bonds developed relatively well and European credit spreads, both within investment grade and among high-yield companies, tightened somewhat during the month.

The largest contributor was the credit management companies B2 Holding and Hoist Finance. B2 presented a year-end report that was well received by the market. B2 reported increased revenues through collections that exceeded previous guidance at the same time as costs were reduced. With strong cash flows, the company was able to further reduce its leverage. Following the report, S&P raised its outlook for B2 from negative to positive. Hoist Finance also delivered a strong set of numbers for 2020 and signed a new securitisation partnership that significantly will add to its portfolio investment capabilities over the coming two years.

Mercell, which runs a platform for public procurement, was also found among the major contributors. The company reported a sharp revenue increase following the acquisition of Visma Commerce at the end of last year. Adjusted for the acquisition, organic growth was impressive at over 30 percent. During the month, Mercell carried out a share issue at the same time as an acquisition in the Netherlands was announced. The company is thus considered to be well positioned to continue to pursue a consolidation of the European market.

Bonds from Tryg Forsikring also made a positive contribution after the company issued new subordinated bonds at the end of the month to partially finance the acquisition of RSA’s Nordic operations. Through the acquisition, Tryg strengthens its market shares in Sweden and Norway to a top-three position while the company remains the leading player in Denmark.

Negative impact on the result came from Heimstaden AB, which was added to the portfolio in January. In February, Heimstaden made its first issue of Eurobonds, which were issued with a relatively high credit spread as investors demanded a premium from the company as a first-time issuer. This led to a significant revaluation of the bonds in the fund. Minor declines were also noted for certain fixed-rate bonds, however, the fund’s short average fixed interest rates limited the impact.

During the month, new investments were made in Norske Skog and Aker Horizons. Norske Skog is a leading producer of newsprint and magazine paper, the company has announced an extensive investment program which, among other things, entails the conversion of capacity from the structurally declining paper market to growing segments in containerboard. The company’s leverage is moderate and new investments are expected to lead to higher margins and improved diversification. Aker Horizon is a holding company with investments within renewable energy and carbon capture technology. The company is newly established as the “green” investment arm of the conglomerate Aker ASA. Aker Horizon has a NOK 24bn market capitalization, net debt to enterprise value is moderate and the company is committed to maintaining indebtedness at investment grade level. In addition, the fund participated in the above-mentioned issue from Tryg Forsikring.

The holdings of bonds from the salmon farming companies Mowi and Austevoll were sold when the valuations appeared to be challenging given the conditions for the sector.

Rising interest rates influenced the risk sentiment at the end of the month, with the US ten-year government bond yield rising at a rapid pace, albeit from low levels. Market participants quickly cited rising inflation expectations as an argument, even though Fed Chairman Powell during the month has been clear that inflation is “soft”, and that the US economy is far from the Fed’s employment and inflation targets. A better explanation is probably that the latest auction of seven-year government bonds had the lowest bid-to-cover ratio ever, according to Forbes. In addition, a new support package is in the pipeline which is to be financed with additional debt. Unemployment in the United States in January was 6.3 percent, compared with 6.7 percent the month before. In the wake of the pandemic, there are still 9.5 million jobs lost in the United States. An interesting observation in the world of cryptocurrency is that Tesla invested USD 1.5 billion in Bitcoin and will accept the cryptocurrency as a means of payment, given that laws and regulations allow this. The question is whether this will accelerate other parts of the business community to accept the currency as a means of payment or whether this marks the culmination of the hype.

In Italy, Mario Draghi, former head of the ECB, was sworn in as Italy’s new prime minister. Draghi was the one who coined the term “whatever it takes” to defend the common currency. In addition to this, it has been announced that the European Commission has signed an agreement with Moderna to receive 150 million vaccine doses in 2021 with an option of an additional 150 million doses in 2022.

During the Riksbank’s February meeting, the repo rate was left unchanged at 0.0 percent, as expected, and asset purchases continue within the framework of SEK 700 billion. According to the Riksbank, a continued expansionary monetary policy is needed to achieve the target of 2 percent inflation, hence the size of asset purchases will be maintained at least 2022. The Riksbank expects the inflation target to be reached only in 2023. The Riksbank has also continued its purchases in the corporate bond market during the month, where corporate bonds worth SEK 1.5 billion were purchased. The Riksbank’s holdings now amount to SEK 5.5 billion at the end of February. 56 percent of the holdings is related to real estate companies and a majority of the holdings have a term of up to three years. The Swedish Public Employment Service released unemployment statistics for January, where Swedish unemployment amounted to 8.8 percent, which is an increase of 1.4 percentage points compared with the previous year. On a positive note, the National Institute of Economic Research announced that the retail segment has begun to recover, with fewer companies reporting reduced sales compared with normal. 48 percent of companies now report lower turnover than normal, the corresponding figure in the spring of 2020 was c. 75 percent.

The European and Nordic credit markets showed declining credit spreads during the month in both the high-yield segment and the investment-grade segment. Stibor 3-months was noted at -0.03 percent The Swedish ten-year government bond was quoted at the end of the month to 0.33 percent and has thus risen 24 basis points during the month. The US ten-year government bond was quoted at the end of the month to 1.45 percent after rising by a total of 34 basis points during the month.