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Nordic Corporate Bond Fund (Class I) detracted with 1.88% during February. Since year-end, the NAV per share has consequently decreased by 1.87%. The negative trend from January continued during the beginning of February. Market developments later in the month came to be dominated by the tragic course of events in Ukraine and Russia's full-scale invasion of the country on 24 February. The outbreak of war brought further pressure on risky assets with falling prices for both equities and corporate bonds. At the same time, energy prices, both oil and gas, were seen to rise sharply. The sharp deterioration in the security situation and increased uncertainty also led to a rise in the price of gold towards record levels and strengthening of currencies such as the US dollar and the Swiss franc.
With the significantly weakened risk sentiment, credit spreads rose significantly both in the Nordic region and in the rest of Europe. At the same time, long-term government bond yields rose slightly during the month, which put pressure on the generally more interest-sensitive investment grade segment in Europe.
Among the positive contributors of the month were the insurance company Protector and short bonds from the credit management company Convene. Protector's financial statements showed good growth during the year and an improved insurance result, in addition, the solvency ratio was strengthened well above the target level. Convene reported an operating profit for the full year 2021 which was slightly higher than the company forecast, the guidance for the coming years indicates a slight improvement in earnings. Convene has deservedly managed to sidestep the loss of revenue that has arisen as a result of lower statutory collection fees in Norway with cost savings and new revenue streams.
The largest declines were observed for bonds from real estate companies such as SBB i Norden and Balder. In addition to the general market downturn, SBB came under pressure after a (in)famous hedge fund published a report that classified the company as non-investable. However, the quality of the report was highly deficient as it contained numerous factual errors and insinuating allegations without objective grounds. Both Balder and SBB presented their financial statements, which showed a sharp rise in property management results and an improved interest coverage ratio.
Relatively large declines were also noted for bonds from insurance companies such as ALM Brand and If. Covered bonds also had a negative impact on the result due to rising market interest rates and broader credit spreads in this segment as well.
The companies in the portfolio that reported during the month, in most cases, met expectations. Among the most positive reports was Norske Skog, which delivered a sharply improved result during the fourth quarter, and the outlook for 2022 is also good. The credit management company B2 Holding also offered a strong report with collections over the forecast and a falling leverage. During the fourth quarter, B2 increased its investments and the company guides for continued good investment opportunities in 2022.
During the month, subordinated bonds from SBB i Norden and Telia were exchanged in Swedish kronor for ditto in euro. The swaps resulted in higher credit spreads at the same time as the expected term increased marginally. The fund participated in two new issues when Protector Forsikring and Infrastructure Logistics issued new bonds at the beginning of the month. Divestments were made of bonds from, among others, Sagax, Odfjell and NP3 Fastigheter.
The main event of the month was Russia’s invasion of Ukraine, which completely dominated the news flow towards the end of the month. After the Donetsk and Luhansk regions were recognized as independent states by Russia and Vladimir Putin later approved the military invasion of Ukraine, Western response have been tilted towards major economic sanctions. Among other things, the sanctions were directed at Russian banks and Russia's access to the capital and financial markets. The EU and the US have also imposed personal sanctions on oligarchs and members of the Russian parliament. As proof of the historical support behind the sanctions, Switzerland, known for its neutrality, announced that it would act in accordance with them. S&P has since lowered Russia's credit rating in two rounds down to CCC- from the previous BBB-. The invasion has also put pressure on energy prices, especially in Europe where forward prices show that German electricity now costs about 10 times more than in 2019. This may give a continued boost to the already high inflation, which creates a major problem for the European Central Bank (ECB).
US core inflation was measured at 5.2% in January compared with the same month last year, the highest rate since April 1983. At the same time, labor market statistics showed a continued strong increase with 467,000 new jobs outside the agricultural sector, against expectations of 150,000.
This month's inflation statistics for the euro area showed an inflation rate of 5.1% in January. Core inflation was noted at 2.6% versus the expectation of 1.9%. The ECB left interest rates unchanged, expressing concern about rising inflation. The war in Ukraine is expected to pick up the inflation rate in the short term as a result of rising energy costs.
High inflation figures were also noted in Sweden in January, where the important target variable KPIF excluding energy rose to 2.5%, which is the highest listing since 2009.
During the month, the European and Nordic credit markets showed rising credit spreads in both the high-yield and investment-grade segments. Stibor 3-months was noted at -0.07%. The Swedish ten-year government bond was quoted at the end of the month to 0.54% and has thus risen by 14 basis points during the month. The US ten-year government bond was quoted at the end of the month at 1.83%, 4 basis points higher than at the end of the previous month.
Portfolio Manager of Coeli Nordic Corporate Bond Fund
Senior Analyst
| Inception Date | 2014-06-18 |
| Management Fee | 0.5 % |
| Performance Fee | N/A |
| Risk category | 3 of 7 |
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Before making any final investment decisions, please refer to the prospectus of Coeli SICAV I, its Annual Report, and the KIID of the relevant Sub-Fund. Relevant information documents are available in English at coeli.com. A summary of investor rights will be available at https://coeli.com/regulatory-information-coeli-asset-management-ab/.
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.