Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK September 2019
Nordic Corporate Bond Fund (Class R) declined during September with 0.03 percent. Since year-end, the NAV per share has consequently increased by 3.08 percent. The positive trend in the corporate bond market continued in September with generally stable credit spreads in Europe. However, slightly rising long-term interest rates held back the return. In the Nordic submarket, the sentiment was strong with high activity in the primary market, where primarily real estate companies carried out new issues.
The largest contributor in September was PWT Holding, whose bonds developed positively after the company presented its quarterly report. Both sales development and margins improved marginally compared to the previous year. The company’s management was cautiously optimistic about the outlook for the rest of the year and continue to see improvement potential in the business. The ship leasing company Ship Finance also developed well as the company continued its growth journey through investments in three major tankers.
The largest negative impact on earnings was the credit management company Intrum, whose bonds fell in value after the company issued new bonds to refinance parts of the company’s bond loan with maturity in 2022. With the refinancing, Intrum has a more even maturity profile on its debt portfolio, which is positive; however, in the short term the increased supply of bonds leads to some price pressure. Similarly, the price trend for bonds from B2 Holding was weak. The company presented its quarterly report on the last of August, the contents of which were already largely known after the profit warning earlier in August. B2 now guides for a somewhat lower growth rate and states that the conditions for investing in overdue receivables continue to improve. Bonds from Melin Group continued to decline in value after the company’s quarterly report was released at the end of the previous month.
During the month, a new investment was made in bonds from Gjensidige Forsikring, a Norwegian insurance company. Gjensidige is the market leader in non-life insurance in Norway and has an advanced market position in Denmark as well. The company is very well-capitalized and has stable profitability. The investment expands the Fund’s exposure to cyclically insensitive companies. Moreover, a swap of subordinated bonds from Telia was carried out, where fixed-rate bonds in Euro were exchanged for an FRN in Swedish kronor. The exchange took place on favorable terms with a slightly higher spread while shortening the interest rate duration and expected maturity. At the end of the month, the portfolio consisted of 52 holdings from 49 different issuers.
Federal Reserve (Fed), lowered its benchmark interest rate in September by 25 basis points. Jerome Powell, chairman of the Fed, highlighted that the American economy, especially the consumer part, is still strong with low unemployment levels, but there are risks on the horizon. These risks come foremost from a weaker global economic outlook and accelerating trade wars, especially after the new round of tariffs between the U.S and China. Fed pointed out that in the case of continued weaker data points regarding the American economy, the central bank has room for aggressive maneuvering. Fed’s benchmark rate interval is now in the range of 1.75-2.0 percent. Equity indices initially traded down on the announcement, but later recovered the same day while government treasuries were unchanged, indicating the announcement was in line with investor expectations.
The European Central Bank (ECB), chose in line with Fed to lower its deposit rate by 0.10 percent to -0.50 percent, while also restarting its quantitative easing program. The program consists of monthly purchases of bonds by EUR 20bn with start in November. ECB also eased some of the terms on long-term loans for banks and introduced a new tiering system, with intention to increase lending margins for banks in the union. The retiring ECB chairman Draghi, scheduled to leave by end of October, commented that combined with monetary easing, the Euro area also needs fiscal policy changes, mainly in terms of lower taxes and higher government spending. A continued slowing global economy was also among risks for the region the ECB pointed out.
During the month, the Swedish central bank, Riksbanken, left the repo rate unchanged at -0.25 percent. Also, the bank once again repeated its position for a rate hike by the end of this year or early next year and stated, “low global interest rates and continued declining global economic sentiment means the interest rate is expected to be raised in a slower pace than previous projections”. In other words, Riksbanken lower its projections for coming quarters, but still sees a positive repo rate in the third quarter of 2020 at 0.04 percent (the previous forecast was at 0.14 percent). The Swedish inflation figures, CPIF, for August was noted at 1.3 percent, which was a decline from the previous month of 1.5 percent and a tad lower than consensus expectations.
The Nordic and European credit markets showed a somewhat mixed performance during the month. The investment grade segment of the market showed slightly increasing credit spreads, while the high yield segment initially showed falling credit spreads; however, in the latter parts of the month spreads were rising. Stibor 3-month once again fell through 0.0 percent and was trading at -0.07 percent by the end of the month. 10-year government bonds showed a negative trend with higher interest rates in all of our closest markets.
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||-0.03%||3.08%||8.81%||15.53%|
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.