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Nordic Corporate Bond Fund (Class R) detracted with 0.14% during March. Since year-end, the NAV per share has consequently decreased by 2.09%. March began with generally declining values for risky assets as developments for the war in Ukraine dominated the news flow. However, risk appetite gradually strengthened and at the end of March, credit spreads in both investment grade and the high-yield segment were noted at lower levels than at the beginning of the month. The recovery seems difficult to explain based on fundamental factors, given that we are facing monetary policy tightening from both the Fed and the ECB, while growth in both the US and Europe may slow markedly due to sharply rising consumer prices. Continued rising interest rates, where particularly short-term interest rates rose markedly during the month, put pressure on returns in the bond market.
Among the month's major positive contributors was Lakers Group, which provides services in pumps and water management. At the end of February, Lakers reported revenue for the fourth quarter that exceeded expectations due to good organic growth. However, the margin was squeezed due to covid-related restrictions. Lakers have been part of the acquisition conglomerate Vestum since the end of 2021 and constitute a separate business area and a platform for further acquisitions in the segment.
Bonds from the investment company Aker Horizons, active in renewable energy and green technology, also developed well. During the month, Aker Horizons completed a number of transactions that significantly strengthen the company's liquidity and increase the valuation of the largest holding in terms of value, Mainstream Renewable Power.
The credit management companies Intrum and B2 Holding recovered parts of previous price falls. Both companies reported a strong end to 2021 earlier in the year with good earnings development and a somewhat declining leverage ratio. The companies' investments in portfolios with overdue receivables increased during the fourth quarter and the investment opportunities are judged to be favourable in 2022.
The largest negative impact on the result came from covered bonds, which fell in value due to rising market interest rates. Bonds from Mercell were pressured by a relatively weak quarterly report with lower margins than expected and downward adjustments regarding the estimates of an acquired company. The guidance for 2022 remains positive and the company expects a positive cash flow after investments that should be able to contribute to lowering the leverage ratio.
During the month, a new investment was made in subordinated bonds from Vattenfall. In recent years, the company has significantly strengthened its credit profile, high electricity prices and compensation from the German state for closed nuclear power plants contributed to a significant reduction in net debt last year. With current earnings and investment plans, Vattenfall is expected to receive a higher rating later in the year. Bonds from the industrial service company Quant were divested due to increasing refinancing risk. In addition, the fund participated in a new issue of subordinated bonds from Telia.
Among the fund's holdings of bonds from real estate companies, the exposure to Castellum and Balder was increased while the holdings of Corem was reduced.
Market focus during the month has largely been towards the same theme as in February, the war in Ukraine. At the time of writing, media reports are suggesting discussions about a potential ceasefire between Ukraine and Russia, with concessions on the part of Ukraine, including the abolition of its NATO membership ambition. Additional sanctions against Russia were introduced during the month, with the United States imposing a ban on imports of Russian oil, natural gas and coal, which accounts for about 8% of US total energy imports. In addition, the EU aims to reduce its gas dependence on Russia by 80%, where imports from other countries and energy efficiency improvements will solve energy needs. The goal is for the region to eliminate dependence pf Russian energy production by 2030, an ambitious goal to say the least. Russia's credit quality remains under strong pressure due to the sanctions imposed, during the month S&P has lowered the credit rating to CC and Fitch has lowered to C. At the same time, Russia has met the first interest payment since the imposed sanctions of USD 117 million, it will be interesting to follow how the country handles future payments. The Russian central bank currently has a policy rate of 20%, in an attempt to prevent a sharp depreciation of the ruble.
The other major theme during the month has been the concern for rising inflation and the potential response from central banks. The US Federal Reserve (FED) responded by raising the key interest rate by 25 basis points to the range of 0.25 - 0.50%. The compilation from the members showed an expected policy rate of 175 basis points at the end of 2022, which means another six increases during the year. Fed Chairman Jerome Powell indicated in a speech that the Fed will consider a more aggressive policy regarding interest rate hikes in the future.
In the Euro area, recent surveys have shown an inflation rate of 5.9% in February with a core inflation rate of 2.9%. However, the ECB chose to keep interest rates unchanged with an expectation of a stabilizing inflation rate around 2%, driven by the slowdown of energy prices. The ECB is guiding for a hike "some time after" quantitative easing is completed.
During the month, the European and Nordic credit markets showed slightly tighter 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 1.20% and has thus risen by 66 basis points during the month. The US ten-year government bond was quoted at the end of the month at 2.32%, 49 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.