Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK October 2020

Nordic Corporate Bond Fund (Class R) decreased during October with 0.15 percent. Since year-end, the NAV per share has consequently decreased by 2.20 percent. Both the corporate bond and equity markets ended the month on a negative note. For the second month in a row, spreads in the high-yield segment widened. The investment grade companies fared better with more or less unchanged spreads over the month, but with a weak ending in the last few trading days. The risk appetite was again weighed down by the increased spread of the coronavirus and new restrictions in several European countries, including Germany and France.

In the Nordic primary market, activity was somewhat lower compared with the previous month, new issues were seen mainly from a handful of Swedish real estate companies.

Halfway into the reporting season, it can be stated that most of the companies that are part of the portfolio and have presented their quarterly figures are developing well, despite in many cases challenging conditions. The insurance companies Tryg and Gjensidige are doing very well with both premium growth and solid capital adequacy. Among the more cyclically sensitive companies, Hexagon and Stolt-Nielsen can be highlighted. During the quarter, Hexagon reached its highest operating margin ever despite somewhat declining sales. Stolt-Nielsen far exceeded market expectations, thanks to good cost control, the margin increased, and the company significantly reduced its leverage ratio. The banks have also come in stronger than expected, both Nordea and DNB have reported lower credit losses than expected and show reassuring levels for capital adequacy.

Among the month’s largest contributors was the credit management company B2 Holding, whose bonds rose in value after a couple of sector colleagues submitted strong quarterly reports with collections that surpassed previous forecasts and results that exceeded expectations. The quarterly report from B2 is expected during the first week of November.

On the negative side, bonds from Intrum, despite a solid quarterly report, were traded down. Real estate companies also developed rather weakly with negative contributions from, among others, Akelius and Samhällsbyggnadsbolaget i Norden. Akelius delivered a quarterly report that showed an unchanged loan-to-value, going forward the company will focus less on properties in need of refurbishment, which may strengthen the interest coverage ratio and open up for a higher rating. Samhällsbyggnadsbolaget reported a number of real estate transactions where the portfolio is refined through divestments of office properties and investments in care and nursing properties.

During the month a new investment was made in bonds from Hoist Finance, which will be the fund’s third holding among credit management companies. Hoist differs from most of its competitors by being a regulated financial market company, which means that the company can accept deposits that provide industry-leading borrowing costs. The investment in Hoist is motivated by the company’s strong cash flows, before portfolio investments, good capital adequacy and announced cost-saving programs that are expected to lead to increased profitability in the coming years. In addition, Akelius Residential was added to the portfolio at the same time as bonds from Castellum and ÅF Pöyry were divested.