Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK August 2021

Nordic Corporate Bond Fund (Class R) advanced during August with 0.35 percent. Since year-end, the NAV per share has consequently increased by 4.47 percent. In August, tighter credit spreads were seen in the high-yield segment, especially in the Nordics and Europe. Among investment-grade issuers, the spreads moved sideways, which together with rising long-term government bond yields put pressure on returns. Towards the end of the month, activity in the primary market increased with a steady stream of new deals. Demand for bonds was generally good and most transactions in the Nordic region could be placed below or in the lower parts of the indicative pricing.

The biggest contributor of the month was the reinsurer SirusPoint. The company reported an improved technical result while income from investments remained at a high level. Since the merger between Sirius and Third Point earlier this year, the company has been focusing on achieving increased profitability with smaller fluctuations in earnings, the strategy seems so far to be successful.

The ship leasing company SFL Corp also made a positive contribution after reporting a slightly stronger result than expected. Higher earnings and a smaller equity issue contributed to lowering leverage. In recent months, SFL has been active and invested in new tonnage, which has resulted in the order backlog during the quarter increasing by approximately 12 percent to USD 2.7 billion.

On the negative side one mainly found covered bonds, which detracted marginally in value as a result of rising market interest rates. Bonds from the e-health company PatientSky also declined somewhat after a report that did not live up to expectations both in terms of sales and operating profit.

During the month, a new investment was made in a green secured bond from Øyfjellet Wind, which finances the construction of Norway’s largest land-based wind farm. The project comprises 72 wind turbines and will be completed at the end of the year with a capacity of 400 MW. Øyfjellet is considered an attractive investment as many risk factors have been mitigated: most of the electricity produced will be sold at a fixed price on a 15-year agreement, technical management takes place at a fixed price and the manufacturer of the wind turbines provides extensive production guarantees.

Fjord1 left the portfolio after the company was taken private by the main owner and a private equity fund.

During the Jackson Hole conference, Fed chairman Powell communicated that tapering is likely as the US economy is showing signs of recovery. Currently the pace of purchases is USD 120 billion per month. However, even if tapering were to happen it is still expansive monetary politics as it is not about halting asset purchases. Powell also emphasized that a possible interest rate increase will only take place when the economy meets the Fed’s target of maximum employment and inflation of 2 percent. Core inflation in the US is around 4.3 percent year-on-year, but is estimated by the Fed to be transitionary on these levels.

In the ECB there are also raised voices regarding reduction of asset purchases, mainly pandemic-related support purchase programs. The inflation rate in the euro area showed 3.0 percent in August, which is the highest measured inflation rate in the area since 2011. Consensus estimates was at 2.7 percent.

The biggest news from Sweden during the month was that Prime Minister Löfven will resign in connection with the Social-democrats convention in November. This autumn, a new government will be appointed at the same time as a new budget will be voted through. Might make for a messy political autumn. Also, Minister of Finance Andersson presented a scope for reform in the forthcoming budget proposal of SEK 74 billion, of which tax cuts account for SEK 10.5 billion.

During the month, the European and Nordic credit markets showed slightly declining credit spreads, foremost in the high-yield segment. Stibor 3-months was noted at -0.03 percent. The Swedish ten-year government bond was quoted at the end of the month at 0.17 percent and has thus risen 7 basis points during the month. The US ten-year government bond was quoted at the end of the month at 1.30 percent, 8 basis points higher than at the end of the previous month.