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Spreads on global high-yield bonds fell by some 110-120 basis points, meaning bond prices had a very decent appreciation in April.

And that's but one month – in the midst of the worst economic and financial crisis the world has seen in decades, likely to hit global GDP much harder than the great financial crisis.

Admittedly, it didn't come close to erasing all of this year's losses. And, of course, it may be a temporary bounce, a typical reaction to an overreaction in March. I do believe, though, that there is more to this story.

In response to the crisis, governments and central banks around the globe took a number of measures to counteract what many, including our own government, would label market failure. A Federal Reserve press release introduced actions taken to promote/support "the smooth functioning of markets"; i.e. markets didn't function like they should. Incidentally, Investopedia just updated its market failure entry.

The Econ 1.01 lesson is that when markets fail, governments step in, trying/hoping to correct or ameliorate the failure. There might, however, be an additonal Finance lesson here.

Malfunction in capital markets does not lead to artificially elevated prices on securities or commodities. We don't need to discuss that possibility, do we? If there is some kind of market failure, the impact is certainly negative; we can expect it to depress prices – like it did this spring. In fact, we can expect it to depress prices below their "natural" level in the absence of market failure – because the failure is in the very market that does the job of setting the prices.

April provided a vivid indication that prices had indeed been artificially depressed. Admittedly, we don't know the extent of the coronavirus crisis going forward. The optimists may still be proven fatally wrong. When you think about it, though, that is not tantamount to saying that the markets were right in March. We now know more than we knew a month ago and capital markets are decidedly firmer. They also function better, with fewer hiccups.

In part, then, government intervention did have the intended impact. It often does. Therein lies the clue of the month: When governments do feel the need to intervene, especially if they decide to intervene on a grand scale, it may just be an unfortunate time to sell. 

Fund updates for April 2020

Pareto Investment Fund
After a very bloody March, the world's stock markets recovered somewhat in April. The Norwegian market rose by about ten per cent, while the fund increased significantly more.

 

Pareto Aksje Norge
April ended up being the strongest month in almost a decade for the portfolio. An increase of approximately 12 per cent was also somewhat better than the market.

 

Pareto Nordic Equity
The fund rose more than the Nordic equity market in what turned out to be a strong month.

 

Pareto Global 
April was a strong month in both absolute and relative terms. Many of the companies that fell the most in March experienced a solid rebound.

 

Pareto Nordic Return 
The fund rose more than the Nordic equity market in what turned out to be a strong month.

 

Pareto Nordic Alpha
In April, the fund had a very good performance, helped by good stock selection in companies with uplifting first quarter reports.

 

Pareto Nordic Omega
In April, the fund had a very good performance, helped by good stock selection in companies with uplifting first quarter reports.

 

Pareto Nordic Corporate Bond
In April we saw a clear change of sentiment in the Nordic credit market, with credit premiums tightening for most of the bonds in our portfolio. Consequently, the fund delivered strong returns for the month.

 

Pareto Nordic Cross Credit
In April we saw a clear change of sentiment in the Nordic credit market, with credit premiums tightening for most of the bonds in our portfolio. Consequently, the fund delivered strong returns for the month.

 

Pareto Global Corporate Bond
The fund's return in April was one of the best ever. The defensive nature of the fund contributed to the recovery being so strong.

 

 

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager's skill, the fund's risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments.

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