Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK August 2019
Nordic Corporate Bond Fund (Class R) advanced during August with 0.44 percent. Since year-end, the NAV per share has consequently increased by 3.11 percent. Developments in the corporate bond market were initially pending with falling risk appetite among investors. During the last two weeks of the month the trading environment improved, which contributed to tighter credit spreads. Weak economic signals weighed on sentiment but were balanced by growing hopes for easier monetary policy. The combination of the two contributed to falling long-term interest rates globally, which gave another push to prices for fixed-rate bonds.
The largest contributor in August was Intrum, whose bonds have developed well after the company released its quarterly report at the end of July. The company reported improved margins in the credit management segment and repeated its financial goals, which aims toward reducing leverage, among other things. During the month, the Fund made a change from an FRN with maturity in 2023 to a fixed-rate bond with maturity in 2026.
Bonds from consumer credit company 4Finance also made a positive contribution, after trading weakly for most of the year. The company reported a somewhat falling net interest income and modest growth in the loan portfolio. Operating expenses were significantly lower, and the proportion of problem loans decreased, the company seems to be well on its way to adapting its operations to the regulatory changes that have taken place in some of its main markets.
On the negative side one mainly found Melin Group whose bonds declined prior to the quarterly report being presented at the end of the month. The report was rather weak as continued growth of terminals and invoicing services does not yet provide satisfactory financial results. Bonds from the credit management company B2 Holding also traded weak after the company issued a profit warning and a change of CEO was announced. During the second quarter, the company made a major write-down on its portfolio of secured loans in southeastern Europe.
Relatively few changes were made to the portfolio during the month. Bonds from Ocean Yield with maturity in 2023 were exchanged for subordinated bonds from the same issuer. The holding of bonds from B2 Holding was expanded and Norwegian telecom company Ice Goup Scandinavia left the portfolio.
August was a month with continued focus on the trade war between China and the U.S. In the beginning of the month President Trump imposed new tariffs on goods valued at USD 300 billion. The conflict escalated further during the latter part of the month when China imposed tariffs on goods valued at USD 75 billion. The U.S answered by raising the fee on the already announced tariffs, as well as new tariffs on additional goods valued at USD 250 billion, with an announced starting date of October 1st. On the theme of trade wars, Japan has removed South Korea from export whitelist, which means hundreds of products classified as sensitive will be covered by stricter controls.
The recession fears once again flared as the yield curve in the U.S inverted in August, meaning a 10-year government bond trading at a lower yield than a 2-year. This brought down the Dow Jones Industrial Average to its biggest one-day decline in 2019. An inverted yield curve is common 12-18 months before a recession.
In Argentina the peso fell by 30 percent against the USD after the opposition dominated the primary election. Opposition candidate Fernandez has publicly stated willingness to change the deal with IMF regarding Argentina’s debt program, if he wins the election in October.
In the United Kingdom the new Prime Minister Boris Johnson managed to postpone the reopening of the parliament and as such there will be less time for the opposition to stop a no-deal Brexit. October 31st is the deadline for a Brexit and the British government has stated its intention to leave the EU by this date, with or without a deal.
CPIF inflation in Sweden showed an increase by 1.5 percent in July, which was higher than analyst estimates (1.4 percent) and the Swedish Riksbank’s own estimates (1.3 percent). Also, CPIF excluding energy was higher than expected with a reading of 1.7 percent. However, it should be noted the volatile prices in this month’s reading, for example food prices increased by 2 percent.
The Nordic and European credit markets showed somewhat rising credit spreads during the month, especially in the high yield segment of the market. Stibor 3-month rose once again to 0,0 percent during the month. Long-term government bonds showed a positive trend with falling interest rates. Most notable was the German 10-year government bond, where the yield fell to -0.71 percent and the U.S 10-year government bond which is now trading at 1.5 percent.
Coeli Nordic Corporate Bond Fund R-SEK
|Performance in Share Class Currency||1 Mth||YTD||3 yrs||Since incep|
|Coeli Nordic Corporate Bond Fund – R SEK||0.44%||3.11%||9.77%||15.56%|
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.