Portfolio Manager comment Coeli Nordic Corporate Bond Fund I-SEK January 2020
Nordic Corporate Bond Fund (Class I) began the year with a positive performance and NAV increased by 0.69 percent in January. The strong trend from the end of last year continued into January. Demand was supported by continued inflows into corporate bond funds and generally increasing risk appetite. In the primary market, there was high activity with many transactions, most of which were met with solid demand and were over-subscribed several times.
Among the major contributors of the month were consumer credit company 4Finance, whose bonds maturing in 2022 traded up a few percent. The bond has long traded cheaply in relation to the company’s bonds with shorter maturities. The valuation gap has now narrowed somewhat but, in our opinion, remains too large and the 2022 bond should therefore continue to strengthen in price.
Subordinated bonds from Samhällsbyggnadsbolaget i Norden also made a significant return contribution. The company was active in the primary market and issued both senior and subordinated bonds during the month. The issue of subordinated bonds was oversubscribed more than five times, resulting in a very attractive pricing for the company.
The seafood company Mowi, formerly Marine Harvest, was in the market and issued new five-year bonds. The fund participated in the issue and at the same time chose to sell the bonds with maturity in 2023 that were in the portfolio since before. The pricing of the new bonds became tighter than what was initially guided, which resulted in a meaningful tightening of the 2023 FRN.
On the negative side one primarily found Lithium, formerly Lebara, where the reconstruction now is fully implemented and the fund has received two new bonds maturing in 2025 and 2026 respectively, replacing the original bond. As a result of the restructuring, the debt burden has been reduced and new liquidity has been added, the new capital structure gives the company respite and a fair chance for the new management to get the business back on track.
During the month new investments were made in bonds from the game developer Stillfront and the Norwegian shipping company Klaveness Combination Carriers. The pharmaceutical company Orexo left the portfolio when the bond was considered to be fully valued. In addition, bonds were exchanged from the real estate companies Sagax and Samhällsbyggnadsbolaget i Norden with extended maturities of three and two years respectively, resulting in a slightly higher yield to maturity.
January was, to say the least, an eventful start to the new decade. The month began with an escalation in the Iran-US conflict, following a US-led drone attack on a prominent Iranian military commander. The increased tensions led to the rising price on Brent oil to USD 68.5 per barrel (from USD 66 per barrel the day before). At the time of writing, the price has fallen back to around USD 58, indicating somewhat dropping tensions in the conflict. Regarding the trade war between China and the U.S, a “Phase one” deal was signed on January 15th. The agreement is an opening for U.S companies to the Chinese economy, including a Chinese commitment to purchase goods and services worth USD 200bn by 2021.
During the latter part of the month, an outbreak of a Corona virus has affected mainly the Asian stock exchanges. China has tried to stop the spread of the virus by isolating several cities and closing down workplaces. Despite these efforts, the virus has spread to several countries outside Asia, so far without any known deceased.
Another step on the road to a complete Brexit was taken in January when the United Kingdom officially left the European Union. The focus now will be on negotiating a new trade agreement with the EU. The UK also stands without trade agreements with the rest of the world and must therefore negotiate these as well. In addition, within the UK, voices for Scottish independence has once again flared up after the Scottish party, SNP, had a strong election in December. Trade and independence discussions will thus be relevant in the UK in 2020 as well.
During the month, ECB launched a new strategic overview, which will last for the rest of the year. This comes at a time when strong voices are starting to rise within the monetary union about an update of the inflationary target. Among others, the head of Bank of France and the Dutch governor made public their opinion about more dynamic inflation targets. German inflation statistics in January showed rising prices of 1.6 percent , below the ECB’s target inflation of 2.0 percent . This is the ninth consecutive month where Germany has not reached target inflation. At the same time, EU harmonized prices showed declining prices of 0.8 percent , demonstrating some of the challenges facing the ECB.
The European and American credit markets showed rising credit spreads during the month, especially in the high-yield segment. The Nordic credit market, on the other hand, has been unaffected and has seen falling credit spreads during the month in the high-yield segment. Stibor 3-month was noted at 0.19 percent , which is a slight upturn from previous months closing. Stibor 3-month was noted at 0.02 percent in mid-December. The Swedish 10-year government bond, which ended the previous year at 0.14 percent , fell once again below 0.0 percent during the month and was noted at -0.04 percent on January 31st.
Coeli Nordic Corporate Bond Fund I-SEK
|Performance in Share Class Currency||1 Mth||YTD||3 yrs||Since incep|
|Coeli Nordic Corporate Bond Fund – I SEK||0.69%||0.69%||9.25%||19.63%|
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.