Monthly Commentary - Pareto ESG Global Corporate Bond
US President Joe Biden gave his first speech to Congress, promising to invest close to USD 2 trillion towards employment, climate and infrastructure. Almost at the same time, the Federal Reserve announced that it would maintain its zero-interest rate policy and continue to buy bonds through quantitative easing programs. Together with Europe's stimuli, we have a stable rain of stimuli for some time to come. Eventual concerns about inflation and deficits may rest in the background for the time being.
Not entirely unexpectedly, these large support packages have been well received by the market. Risk assets and the credit market had a strong month in April. It is worth noting however, that raw material metal prices have risen quite sharply throughout the year. Copper, for example, is trading at the highest levels seen in the last 10 years. The global semiconductor shortage is also beginning to affect company logistical chains and is mentioned already in some recent company reports.
New issue volumes were very strong in both investment grade and high yield during the month of April. In US high yield alone, USD 49 billion were issued in April. The US investment grade market had USD 111 billion in issue volume. Europe and the Nordic countries also had a strong month for new issues, and it is positive to see that all this volume has been absorbed by the market. Several new issues have also traded up in the aftermarket.
The ESG development remains strong in both Europe and the United States. Europe continues to be a leader in volume and number of issuers. However, the large Biden renewable investment plan in the US will probably contribute to a large increase in capital raising for sustainable financing in the US.
The fund had a strong and stable development during the month. The capital in the fund also increased during the month.
With increased capital, the fund participated in several new issues, such as Oriflame, Grunenthal and Danfoss. New names in the portfolio are Danfoss and Grunenthal.
Grunenthal is a leading global pharmaceutical company specialising in painkillers.
In the secondary market, we sold bonds by Emergent Biosolutions. The company has been a subcontractor to the Johnson and Johnson Covid-19 vaccine, but their factory has been shown to have major problems. The company has not come up with a good enough answer to the problems and we no longer fully trust the company and have sold the entire position.
Synthetic CDS credit indices improved slightly during month of April. The iTraxx Crossover index went from +254 bp at the end of March to +249 bp at the end of April.
Portfolio management team:
Stefan Ericson
Lead portfolio manager / Branch manager Stockholm
Philip Lindgren
Credit analyst
Ingrid Johanne Nygaard
ESG analyst
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