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Nordic Corporate Bond Fund (Class I) advanced during March with 0.66 percent. Since year-end, the NAV per share has consequently increased by 2.19 percent. March is summarized as a positive month with rising equity markets and stable development in the corporate bond market with relatively unchanged credit spreads. Long-term US government bond yields continued to rise, but without putting the same pressure on risky assets as earlier in the year. The rise in interest rates is now interpreted as expectations of continued steady economic recovery during the year.
The largest contributor was the consumer credit company 4Finance, which presented its year-end report at the end of February. The company reported a relatively strong end to the year with an improved operating profit compared with the second and third quarters. The pandemic has had a significant impact on 4Finance as new lending in 2020 was significantly lower compared with the previous year, however, the company has shown good cost control while credit losses as a share of lending have decreased. Through increased focus on more creditworthy customer segments and a limitation to fewer markets, the conditions are deemed to be good for the company to increase profitability in the current year.
Bonds from Heimstaden AB recovered large parts of the devaluation that took place in February after the issue of Eurobonds. Magnolia Bostad also made a significant contribution to the result after the company issued new four-year bonds and announced early redemption of bonds maturing in 2021.
The ship leasing companies Ocean Yield and SFL (formerly Ship Finance) were also found high on the list among positive contributors. SFL benefits from the very strong market for container vessels, which accounts for approximately 74 percent of the company's back log, which entails lower counterparty and residual value risks. Ocean Yield reported that one of their customers exercised call options for two vessels, which leads to a direct strengthening of the balance sheet and increased scope for new investments.
On the negative side one primarily found the industrial service company Quant, whose bonds retreated after a weak year-end report that was released at the end of February. Quant's sales have decreased as the company has not succeeded in replacing terminated and expired contracts with new business. With current earnings, the company's indebtedness is challenging, with stabilized, or slightly improved, sales and opportunities for margin improvements, it is still considered manageable. At the end of March, Quant reported that they had won a major contract that is expected to increase sales by about 8 percent on an annual basis.
Some negative impact also came from SBB i Norden, whose longer bonds declined somewhat. This is, despite the fact that S&P during the month raised the outlook for the company to positive and that a directed share issue was announced, precisely in order to meet the requirements for a higher rating.
During the month, the exposure to the insurance companies IF and Gjensidige was increased, both issuers are expected to offer relatively defensive exposure. In addition, bonds with short maturity from Magnolia Bostad were added to the portfolio. The holding of bonds from American Shipping Company was sold after the company's counterparty flagged that it did not fulfill its loan covenants.
The Federal Reserve (Fed) left the target interest rate range unchanged at the March meeting and members expect this to remain unchanged until 2023. The market continues to interpret the Fed's communication as an ambition for significant expansionary monetary stimulus, until the target of inflation above 2 percent has been achieved. Expansive policy measures were also presented by the government, as President Biden, in addition to the announced Covid stimulus, launched plans for a comprehensive infrastructure package of USD 2,000 billion. The package is expected to be partly financed through higher corporate taxes, which are currently at 21 percent but are expected to increase to 28 percent. US unemployment continues to fall and was noted at 6.2 percent in the latest survey.
As expected, the ECB left asset purchases and interest rates unchanged. The pace of asset purchases under PEPP program are though planned to be increased significantly during the second quarter. Eurostat's latest survey shows that unemployment in the euro area was 8.1 percent, which was slightly lower than expected. Sustainable investment continues to be a theme since the launch of EU's taxonomy. During the month, the ECB faced criticism as the purchases of corporate bonds, c. EUR 280 billion over the past five years, have largely benefited companies with high carbon emissions. The ECB will now have a review of the framework to potentially revise its strategy. EBA (European Banking Authority) has also introduced a new climate measure for calculating banks' investments, which will be a requirement to report in the annual report for 2022.
In Sweden, statistics from SCB showed Swedish inflation rose by 1.5 percent in February compared with previous year. This was well below the Riksbank's forecast of 2.0 percent. The National Institute of Economic Research published a forecast during the month for the Swedish economy with revised GDP figures. The institute now forecasts growth of 3.7 percent for 2021, compared with 3.2 percent previously forecasted. Behind the revised figures is an assumption of a strong recovery during the third quarter when all adults were expected to have been offered vaccines. However, Astra Zeneca has lowered its estimate for vaccine deliveries during the month, c. 2 million previous doses are expected to arrive in Sweden during the first half of the year. The government has also postponed the forecast when all adults in Sweden will have been offered the vaccine to mid-August, thus; there is significant uncertainty when the vaccination target can be met.
The European and Nordic credit markets showed slightly declining credit spreads during the month in both the high-yield segment and the investment-grade segment. Stibor 3-months was noted at -0.02 percent. The Swedish ten-year government bond was quoted at the end of the month to 0.38 percent and has thus risen 5 basis points during the month. The US ten-year government bond was quoted at the end of the month to 1.74 percent after rising by a total of 29 basis points during the 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 |
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.