Monthly Commentary - Pareto Global Corporate Bond
Many companies and decision makers that we talk to convey that travel and the organisation of the work environment will probably change to some extent also in the future. The best thing is probably if we take a crisis like this and try to find positive solutions. Innovation and creativity often increase during periods of crisis, because new thinking is needed to a greater extent. Much of this is probably reflected in the discrepancy between valuations of equities and other risk assets in relation to a continued weak economy. The future looks bright a bit ahead, while we have challenges here and now. Sustainability has, if anything, become an even more important aspect for the world in order to cope with the growing population and our carbon footprint. We believe that companies which contribute to sustainable development will be the winners of the future.
Most companies have reported for the second quarter, and many reports are better than expected. When it comes to companies in the fund, the reporting season has been well above expectations. Most companies even had record earnings, e.g. Jacob Holm, momox, and Eurofins. Several of these companies have products or services that have been in great demand recently. An example of this is Jacob Holm, which produces materials for masks and medical equipment, among other things. What we see in general is that discipline and government support have contributed exactly as we hoped. The big initial shock is now over and the global economy has recovered in an impressive way. The credit market reflects this, with generally good opportunities for company financing in loans and the bond market.
There was a very strong new issue market in the US in the first three weeks of August. US high yield issuance in the first nine months were almost at record volumes. The quality is mixed, from vulnerable sectors such as cruise and travel companies, to the health sector. We have been very selective in the issues we participate in. There is still great uncertainty about Covid-19 and its development.
The fund had good inflows and also a strong development during the month of August. The focus on ESG remains strong in the market, and in Pareto Global Corporate Bond we see that most companies with a strong ESG profile have bright prospects. After a very strong rise in credit prices over the past two months, we believe that cash returns (coupons) will contribute to a larger part of the total return for some time to come.
The fund bought a number of bonds in the new issue market, Covanta, TreeHouse, Emergent BioSol, Ball Corp, and Davita.
In the secondary market, the fund bought Jacob Holm, PTC, GetLink, Energizer, Pattern Energy and Belden.
Synthetic CDS credit indices strengthened during month of August. The iTraxx Crossover index went from +376 bp at the end of July to +322 bp at the end of August.
Portfolio management team:
Philip Lindgren
Portfolio manager
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