Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK May 2019
Nordic Corporate Bond Fund (Class R) advanced during April with 0.28 percent. Since year-end, the NAV per share has consequently increased by 1.98 percent. The Nordic corporate bond market withstood the turbulence in the equity markets relatively well, with generally stable credit spreads. Activity in the primary market remained high with plenty of new issues and the appetite for new bonds seems to be strong.
The largest contributor in May was the cyber security consultancy SecureLink after the company received a purchase offer from the telecom operator Orange, which caused the bond price to rise about 9 percent. The entire holding was divested a few days after the news was released.
The property developer Magnolia Bostad also belonged to the major contributors. In May, the company announced a new joint venture with Heimstaden Bostad with the aim of developing about 800 apartments north of Stockholm. The production start is expected to take place in 2019 with completion scheduled for 2021. After a couple of quarters without any major projects being announced, it is reassuring that Magnolia now carries out a major transaction based on building rights in the company’s project portfolio. Bellman Group also provided a significant return contribution after the company’s quarterly report exceeded expectations. As a result of acquisitions, significant revenue growth and a doubled operating profit were reported.
On the negative side, one mainly found euro-denominated bonds from Akelius Residential, Telia and Dometic. The price decline for these bonds was not driven by any company-specific news, but rather explained by the fact that the euro market developed significantly weaker than the local Nordic corporate bond market.
During the month, the fund participated in a new issue of bonds from the ship leasing company Ship Finance. The bond is expected to offer good return opportunities thanks to a robust business model that provides extremely stable cash flows while the company is facing interesting growth opportunities. In addition, newly issued bonds from the telecom company Millicom were added to the portfolio and the holding of bonds from Norwegian Austevoll was increased. Bonds from the Samhällsbyggnadsbolaget with maturity in 2024 were sold in favor of a placement of bonds with a one-year longer maturity from the same issuer The holding of bonds from Icelandair was reduced when the company carried out a repurchase, the remaining holding is expected to be redeemed this summer.
May started off with an escalation of the trade war between the US and China with Trump’s threats of additional tariffs on Chinese goods. According to analysts, a trade agreement between the two countries was already accounted for and this set the tone on the market for the entire month. Hence, the S&P 500 fell by 6.6 percent, the second worst month of May since the 1960s. In mid-May, the trade agreement discussions fell through and new negotiations between senior diplomats are yet to be planned. At month-end, the US subsequently imposed tariffs of 25 percent on goods with equivalent value of USD 200 billion. China countered with increased tariffs on goods corresponding to a value of USD 60 billion.
Europe also had an eventful month with an EU election and continued Brexit problems. Theresa May’s proposal for a withdrawal agreement has been voted down by the British Parliament three times and in a fourth attempt May opened for a new referendum. This was the last straw for the Brexit supporters in her party Tories and meant the end of her period as the British Prime Minister. May will remain in her position until a new leader has been appointed, which is expected to occur in the end of summer. There is now an inherent risk that advocates of a no-deal Brexit advance their positions in the party.
The Italian party Lega, with leader Matteo Salvini, had a favorable result in the EU election. Salvini has promised in the elections to lower taxes in the country and try to transform the EU budget rules in order to lower unemployment in the country. Italy is already facing high government debt and had earlier this year issues with getting the state budget approved by the EU commission. Further budget discussions between the country and EU is to be expected from here on.
Swedish GDP rose by 2.6 percent in the first quarter of 2019 compared to the same quarter in 2018, which was higher than analyst estimates. However, Swedish domestic demand was slightly weakened with a decline in imports by 0.7 percent. It was primarily the household demand that decreased in the first quarter.
The Nordic and European credit markets showed rising credit spreads during the month, breaking the trend from prior months. Stibor 3-month rose once again to 0,0 percent during the month and long-term government bonds showed a positive trend with falling interest rates. Most notable is the German 10-year government bond, where the yield fell below zero and is now trading at -0.2 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||0.28%||1.98%||10.71%||14.30%|
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.