Nordic Corporate Bond Fund (Class I) advanced during January with 0.56 percent. The corporate bond market began the year strongly with falling credit spreads in general when investors' risk appetite strengthened. The activity in the primary market has been relatively limited so far, which provides further support for the prices in the secondary market.
The largest contributor of the month was the credit management company Intrum, which presented a year-end report during the month with increased turnover and stable margins for the year. Intrum's leverage, net debt in relation to operating profit, increased during 2018 as a result of major investments in debt portfolios and the establishment of joint ventures in Italy and Spain. For 2019 lower investments are predicted and guidance points towards a falling leverage over the next two years.
Dometic was also high on the list among the positive contributors when the company's bonds recovered in line with the European credit market. Good contributions also came from the fund's shipping-related bonds, inter alia Ocean Yield and American Shipping Company, without any significant news being presented from neither of the two.
A handful of portfolio changes were implemented during the month. A change of bonds from Stolt-Nielsen was carried out where one FRN in NOK was replaced by a fixed-rate bond in USD. The change took place at attractive levels with a credit spread about 1.20 percent higher. One third of the holdings of bonds from Icelandair were redeemed early in accordance with the agreement reached by the company with the bondholders in December. In addition, parts of the holding of hybrid bonds from Samhällsbyggnadsbolaget were sold since the valuation of these no longer appears to be attractive.
The month of December was difficult to navigate; however, we can summarize a positive January, both for the stock markets and the credit markets. In the US, S&P 500 rose 7.9 percent, which is the largest percentage increase in January since 1987. The Federal Reserve decided to leave the interest rate unchanged whilst presenting caveat wording in its statement regarding patience for future monetary policy decisions. The report was somewhat surprising for the market as the central bank's tone has changed since the December hike decision. Although, the Fed seems somewhat concerned about the economy going forward; employment statistics were presented, which showed that the number of new jobs in the US economy in January increased by 304,000. This was nearly double the estimates. Thus, the US economy seems steady, despite some external problems.
The Brexit-discussions have continued in the UK. Parliament voted no for both the negotiated agreement and for an exit without an agreement. The British government, led by Theresa May, is now forced to seek concessions from the EU to modify the most, by British standards, controversial parts of the agreement. The request for renegotiation has so far not received any positive response from the EU. Thus, it looks like the UK is approaching the official date for the exit, less than two months’ away, without a withdrawal agreement. However, there is still time and the negotiations will most likely continue.
In Sweden, 131 days after the parliamentary election, a new government finally took office. Although, the extended process for government formation has not had any significant impact on the financial markets. The short Swedish market rates continued to rise in January and STIBOR 3 month is now quoted at levels around -0.10 percent. This is a marked increase from around minus a half percent that was in effect at the beginning of November last year.
In the credit markets, the bleak tone from previous months has been broken, with reduced credit spreads and rising bond prices for both investment grade and high yield bonds. Despite a significant shift in sentiment, the market is still somewhat hesitant with relatively few new issues and low volumes in the primary market.
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 | 2 of 7 |
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.