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

Nordic Corporate Bond Fund (Class R) advanced during March with 0.22 percent. Since year-end, the NAV per share has consequently increased by 1.31 percent. The positive sentiment in the corporate bond market remained during the month with stable credit spreads and spurring activity in the primary market. However, a slight slowdown was noted at the end of the month as a result of increased concern over the slowing business cycle. The market is supported by inflows in funds, both among investment grade and high yield funds. Most new issues in the Nordic high yield market have been well received with strong demand from investors.

The largest contributor of the month was the mobile operator Lebara, which received a capital contribution during the month that will be used to buy back bonds. In addition, the company presented its year-end report, which showed somewhat declining revenue while the underlying operating profit improved as a result of cost savings.

Also, bonds from Ahlsell developed well and the company has been acquired by a private equity fund and therefore the bond loan will be redeemed in April. In addition, good contributions were received from Telia and Dometic, as each company’s bonds recovered in line with the European credit market. Telia, which held a Capital Markets Day during the month, is expected to have weaker operating profits during the first half of 2019 in comparison to the second half of 2018. Even so, Telia maintains its guidance on operational-free cash flow for the full year 2019. In addition, an ambitious goal was announced that the company aims to be carbon neutral, including suppliers, in 2030.

It was primarily the Danish clothing retailer PWT Holding that was found on the negative side. The company’s yearend report showed that operating profit during the fourth quarter improved compared with the corresponding period last year; however, like many other retailers engaged in selling clothes in physical stores the company is struggling with falling sales and pressured margins.

During the month, new investments were made in floating rate notes from Coor Service Management and Norwegian Hexagon Composites. Among the fund’s holdings of bonds from real estate companies, parts of the holding of Sagax were divested in favor of an investment in hybrid notes from Akelius Residential. Akelius has announced that they are aiming for an improved credit rating and have in recent months carried out extensive property sales in order to reduce the loan-to-value ratio.

In March the US Federal Reserve (Fed) once again pointed out that patience prevails regarding future interest rate hikes. Furthermore, the Fed signals that no interest rate hikes are in the cards during 2019. However, it is noted that the US labor market remains strong, but that economic activity has slightly fallen compared to the strong statistics from the fourth quarter of 2018. In addition, the Fed lowered its growth projections for 2019 to 2.1 percent from the previous 2.3 percent.

During the month, the ECB announced that a rate hike will take place no earlier than 2020, this after previously having indicated that a hike could occur after the summer of 2019. At the same time, the ECB announced its intention to reinvest its outstanding asset purchase program, in its entirety, for as long as necessary in order to strengthen liquidity in the market. Starting in September, the ECB will also offer European banks long-term financing in two tranches with the intention of strengthening the conditions in the financial system and promoting a stable transition of monetary policy. The measures should be looked at in the light of that the economy is currently looking weaker, the outlook for both growth and inflation in the eurozone has considerably been revised down to 1.1 percent, from previous 1.6 percent and the inflation forecast to 1.2 percent from earlier 1.6 percent.

Voting on Brexit continues in the UK and it is difficult to keep track of how many times different alternatives has been voted for. The Brits have received a deferred deadline until April 12, thus the risks of a “no deal Brexit” increases. April is expected to be an interesting month since solutions to both the Brexit tragedy and the trade conflict between the US and China are expected.

In Sweden, Statistics Sweden announced the inflation figures for February. CPI inflation was 1.9 percent, against the Riksbank’s forecast which pointed to 2.3 percent. Thus, inflation is still below both the Riksbank’s forecast and its goal. The expected economic slowdown may make it more difficult for the Riksbank to reach the goal and raise questions about the opportunities for interest rate hikes in coming years.

Overall, the Nordic and European credit markets saw unchanged credit spreads during the month, without any major movements. Long-term government bonds continued their positive trend with falling interest rates. An American 10-year bond now yields 2.41 percent, down from 2.75 percent at the beginning of the month. European government bond yields also declined, for example, yields on German 10-year bonds fell to negative territory. Most notably in Sweden was that STIBOR 3 months went above 0 percent for the first time since 2015.