Portfolio Manager comment Coeli Nordic Corporate Bond Fund I-SEK October 2022

Nordic Corporate Bond Fund (Class I) retreated with 1.85% during October. Since year-end, the NAV per share has consequently decreased by 9.68%. Supported by earnings reports that lived up to, or exceeded expectations, a recovery was seen on the leading stock exchanges during October. Expectations that central banks are beginning to approach the peak in terms of interest rate hikes also contributed to strengthening investors’ risk appetite. Corporate bonds in Europe and the US also developed positively with tightened credit spreads, however, the same development was not seen in the Nordics, where the development was weak also this month.

ECB decided to raise its key interest rate to 1.5% and signaled that further rate hikes are to be expected. The tones from the European Central Bank were, however, softer than at previous interest rate meetings and the risks of a sharp economic slowdown were emphasized. Expectations for the US Federal Reserve ahead of their interest rate decision in November are that they too will raise interest rates by 0.75%.

Inflation data for September showed surprisingly high price increases in both the US, the Eurozone and Sweden. A large part of the price increases is still explained by rising energy prices. In recent weeks, energy prices have fallen back in Europe because of mild weather and full gas stocks. Unfortunately, gas prices are expected to rise again as we enter the colder parts of the year.

Developments in the Nordic corporate bond market were weak, where especially bonds from real estate companies continued to decline. The biggest negative impact on the month’s results came from Balder and Samhällsbyggnadsbolaget i Norden, despite generally positive reports from both companies. Balder reported good growth in both revenue and operating profit, although with a slightly rising loan-to-value ratio. Balder’s available liquidity increased during the quarter and exceeds maturing loans for the rest of 2022 and 2023. The same pattern was also seen for SBB: good growth and improved liquidity while write-downs in property values pushed up the loan-to-value ratio. The big news from SBB, however, was that they intend to distribute and list parts of the company’s residential properties separately. The measure means that SBB becomes more focused on community properties and opens to increasing the proportion of bank loans, which can further strengthen the company’s liquidity during a period when the bond market does not offer reasonable financing terms.

The biggest positive contribution came from the credit management company Intrum, which presented a report that was in line with expectations. The company continues to collect slightly above its forecasts and guides for a positive end to the year. However, the rate of investment is expected to decrease slightly, which should help to reduce the debt, which is still above the company’s target.

Covered bonds also made a positive contribution to the month’s result due to stable short-term rates and falling spreads in this low-risk segment. Bonds from Dometic, which were added to the portfolio during the month, also contributed positively. The company’s quarterly report was better than expected with stable margins. Dometic expects a gradual recovery in the service business, which makes up nearly 60% of sales, in the coming quarters, while the outlook for the company’s important new sales of recreational vehicles is expected to remain weak.

In addition to the investment in Dometic, subordinated bonds from Nordea and Danske Bank were added to the portfolio. Divestments were made of bonds from Lakers Group, Norske Skog and SFL Corp. All have withstood the turbulence of recent months relatively well and therefore now appear to be relatively highly valued.