Portfolio Manager comment Coeli Nordic Corporate Bond Fund R-SEK September 2023

Nordic Corporate Bond Fund (Class R) advanced 0.45% during September. Since year-end, the NAV per share has consequently increased by 1.48%. Rising market interest rates, especially long-term interest rates, continued to weigh on market sentiment during the past month. As so many times before, all eyes are once again on the US 10-year government bond, which at the time of writing has ticked up to 4.60 percent, almost 50 basis points higher since the beginning of September. From a Swedish perspective, with gloomy headlines about the economy, it is not easy to understand the resilience of the US economy. Growth in the US is holding up and although the labour market has shown some weaknesses in recent months, overall the outlook for American households is stable.

That said, rapidly rising interest rates are seldom positive for risky assets and consequently the stock market has fallen and credit spreads on corporate bonds have widened slightly. The Nordic corporate bond market, which is characterised by a shorter duration and therefore lower interest rate risk, has not been significantly affected by rising market interest rates. Rising market interest rates are of course not positive for sectors such as the real estate market, which is dominant in Sweden, but much of that concern has already been priced into most bonds. The strategy going forward is to continue to keep the duration short in combination with a well-diversified portfolio with a focus on companies that can handle the higher interest rate environment.

The two real estate companies SBB and Balder were among the month’s major contributors. During the month, SBB carried out two major transactions that will provide the company with much-needed liquidity and create leeway to handle bond maturities during the current and next year. Balder announced a voluntary buyback offer for parts of its subordinated bonds.

Positive contributions were also seen from credit management companies B2 Holding and Intrum. At its capital market day, Intrum presented a new plan to reduce the company’s leverage, including a dividend freeze until the leverage falls below the target. During the month, Intrum had its credit rating lowered by one notch by both Moody’s and Fitch, while S&P left its credit rating unchanged. B2 Holding, on the other hand, had its rating raised by one notch by Moody’s.

On the negative side, mainly fixed-rate bonds were found, which were negatively affected by the rising market interest rates. In addition, the result was negatively affected by the education provider YA Holding, which in connection with the report for the second quarter announced that the board was investigating the conditions for applying for restructuring for one of the group’s larger subsidiaries because of worse earnings development than expected. Considering the gloomy news, the last of the fund’s holdings of bonds from YA Holding were divested.

Other portfolio changes consisted mostly of extensions from inter alia Intrum and Gjensidige. Extensions also took place among the fund’s holdings of covered bonds, where, among others, green bonds from Nordea Hypotek were added.