Portfolio Manager comment Coeli Nordic Corporate Bond Fund I-SEK February 2019
Nordic Corporate Bond Fund (Class I) advanced during February with 0.59 percent. Since year-end, the NAV per share has consequently increased by 1.16 percent. The tone of the corporate bond market remained positive during the month, with increasing activity in the primary market with new issues from Klövern, Nobina, Volvo Cars and Kungsleden, among others. However, the issued volume during the year is so far clearly at a lower level than last year, which supports the prices in the secondary market.
The largest contributor of the month was Dometic, which presented a strong report that showed record levels for both sales and operating profit. In 2018, Dometic has shown improved profitability and the operating margin is now approaching the long-term target of 15 percent. Despite challenges in the form of falling sales of recreational vehicles in the US, the company is guiding for positive organic growth in the coming year, while debt is expected to fall.
Another top contributor this month was the ship leasing company Ocean Yield. The company’s year-end report contained some weak points with somewhat weaker credit metrics. However, this was overshadowed by the company announcing an option agreement for a 15-year contract for an oil service vessel that has been uncontracted since September last year. Also, bonds from the Samhällsbyggnadsbolaget developed well after the company issued new bonds and at the end of the month received positive outlook for its BB rating from S&P.
On the negative side we have the reinsurance company Sirius International whose bonds fell slightly after the company’s majority owner reportedly had problems with liquidity. However, the owners’ alleged problems do not affect the creditworthiness of Sirius since the company is independent with an independent board and activities that are regulated by authorities mainly in Sweden, the US and Bermuda.
During the month a new investment was made in a floating rate note from Stora Enso, with no current exposure to the sector the investment is expected to improve the diversification. In addition, bonds with short maturities from Samhällsbyggnadsbolaget and Kungsleden were exchanged towards ditto with approximately one year longer maturities. Hybrid bonds from Telia in SEK were sold for the benefit of an investment in corresponding instruments in EUR that offered a slightly higher credit spread. Intrum Justitia left the portfolio when a “profit taking” was made after very good price development for the company’s bonds at the beginning of 2019.
In February it became clear the central banks have become more cautious in their comments regarding future rate hikes. The American Federal Reserve decided to pause its expected rate hikes and continues to stress the importance of patience going forward. Fed evaluate the global economy with a higher degree of uncertainty than before – lower growth in China and Europe, tensions in trading, a volatile stock market and further risks for a government shutdown in the U.S, are mentioned as examples of potential global risks. The dovish comments from the FED contributed to the S&P increasing by 11 percent so far this year.
During the month of February, the Swedish Riksbank left rates unchanged at -0.25 percent. The board notes how the economic trend has reached a phase with less economic growth, both in Sweden and globally. However, even if the growth rate in the economy is subdued, the level of economic activity is still strong and according to the Swedish Riksbank the expectations of inflation rates, close to 2 percent in the following years, has not changed.
From a Swedish perspective, GDP numbers for the fourth quarter of 2018 came in during the month. These figures showed a GDP growth of 2.4 percent compared to the same quarter in 2017, which is a considerable improvement than most analysts had expected. At the same time, the negative trend from previous quarters was broken. The Swedish Krona increased on these figures by approximately 6 SEKcents versus the Euro and 4 SEKcents versus the U.S dollar.
During the past month the credit rating agency Fitch announced the sovereign debt rating of Italy, which was left unchanged. However, there was continued negative outlook and a reservation for the considerable sovereign debt levels and the lower GDP growth rate. The Italian government is now continuing an expansionary fiscal policy to increase the growth rate.
The Nordic and European credit markets have started the year strong with decreasing credit spreads and increasing bond pricing; thus, the decline from the fourth quarter in 2018 has almost been completely erased. The value of long-term government bonds has also shown a rising trend in the beginning of the year, where a US 10-year bond now returns 2.75 percent, a decrease from the roughly 3 percent in November 2018.
Notable is also the 3-month STIBOR, which has gone from a level of -0.5 percent before the Swedish Riksbank’s rate hike in December, to a current rate of -0,07 percent. This clear increase is positive for Swedish floating rate notes and money market instruments.
Coeli Nordic Corporate Bond Fund I-SEK
|Performance in Share Class Currency||1 Mth||YTD||3 yrs||Since incep|
|Coeli Nordic Corporate Bond Fund – I SEK||0.59%||1.16%||15.05%||15.91%|
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.