Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK July 2019

Nordic Corporate Bond Fund (Class R) advanced during July with 0.41percent. Since year-end, the NAV per share has consequently increased by 2.24. During the month the performance in the corporate bond market was relatively stable in both Europe and the Nordic region. However, towards the end of the month, volatility increased somewhat with slightly wider credit spreads mostly in the high yield segment. Investors’ risk appetite seems to be dampened by the fact that the US-China trade negotiations appear to have broken down and the US has once again announced increased tariffs.

The largest contributor in July was Magnolia Bostad after the company reported a couple of project sales and an increase in production, which should strengthen the company’s cash flow in the coming quarters. Bonds from Samhällsbyggnadsbolaget i Norden also made a significant contribution to the result. The company’s report for the second quarter showed a solid increase in both rental income and property management results. During 2019, SBB maintained a high level of activity in the transaction market, which resulted in the value of the property portfolio having grown by about 20 percent and amounted to approximately SEK 30 billion at the end of the year. New borrowing and refinancing have consistently taken place under improved conditions, which has significantly lowered the company’s borrowing costs.

On the negative side was the consumer credit company 4Finance, whose bonds continued to detract, but without any significant news from the company.

Few changes were made to the portfolio during the month since the activity was low in both the primary and secondary market. The holding of bonds from 4Finance and Magnolia Housing was increased. In addition, a maturity extension was carried out among the fund’s holdings of covered bonds from Swedbank Hypotek.

Developments in the financial markets in July were characterized by increasing uncertainty about the prospects for the US-China trade negotiations, the risk of a no deal Brexit and growing tensions in the Middle East.

In Europe most economic indicators continued to fall, still pointing to a weaker economy. During the month, the ECB opened for interest rate cuts and other stimulus measures later in the autumn. Weak statistics and the possibility of an even more expansionary monetary policy contributed to putting pressure on long-term government bond yields: the German 10-year government bond was traded at a low of -0.50 percent and the 30-year bonds were indicated below 0 percent. The yield on the Swedish 10-year government bond also fell and was noted at -0.20 percent at the end of the month.

In the US, the Federal Reserve chose to cut interest rates by 0.25 percent. The interest rate cut was expected, but communication from the Fed was less “dowish” than expected, after which short US government bond yields rose and the US dollar strengthened.

In July, the Riksbank announced that the repo rate and interest rate forecast will be left unchanged. The Riksbank thus continues to signal that an interest rate hike is likely towards the end of the current year or early next year. Inflation in Sweden was reported slightly lower than earlier this spring, in support of Riksbanken’s forecast, it is noted that underlying inflation, adjusted for energy prices, is rising slightly and is now just below the target of 2 percent. Growth in Sweden was reported slightly lower than expected, with an increase of 1.4 percent during the second quarter. The National Institute of Economic Research’s barometer indicator continues to fall, pointing to a slower pace of the economy in the coming quarters.