Monthly Commentary - Pareto ESG Global Corporate Bond
An iceberg has its greatest mass below the water surface and Covid-19 infections in February were similar, the rate of infections was far greater than almost anyone suspected or saw. Repercussions for our society are still being felt and many ways that the business world works may be reshaped forever.
Looking at the marketplace it was the best of times, it was the worst of times. Economic forecasts are not designed to include a virtual shutdown of the entire global economy. US oil prices had the improbable closing price of -$37 a barrel on April 20th. All risk markets fell drastically, especially during month of March and the corporate bond market was no exception. Credit spreads widened substantially, and the new issue market was closed. Late March turned out to be the low point of the year for both equities and credit markets. What followed was a remarkable rally lasting all the way in to end of December.
As corporations looked to cut costs, one would have thought that the focus on sustainability would have taken a breather during 2020. Quite the contrary has happened and maybe the pandemic has highlighted the vulnerability of our society. Focus on healthcare and the environment has increased dramatically in 2020. Green Bond and Social Bond issuance hit all-time highs during the year.
In December, the fund participated in several new issues like Stora Enso Green Bond, Kraton Polymers and Audax Renovables Green Bond. Audax Renovables, S.A. develops and operates wind energy farms, biomass, and other renewable energy projects. The company is a member of the Spanish Global Compact network.
The fund was down for the first half year but finished up for the year for all share classes of the fund. It was a busy year with many new names in the fund, like Covanta, Pattern Energy, TreeHouse Foods and Kraton. Renewable energy, green bonds and healthcare were some of the sectors we increased our exposure to. We decreased our exposure to concrete producers due to their large carbon footprint by exiting US Concrete. The rapid recovery in the financial markets has taken us to a more neutral level for spreads in the global corporate bond market.
Looking ahead to 2021, we believe that the greater part of the total return in fixed income will come from coupons and carry and a smaller share from price movements. A well-diversified, sustainable corporate bond fund is well positioned for 2021
In order to reflect the emphasis and commitment to making sustainable investments, the fund changed its name to Pareto ESG Global Corporate Bond during the year.
Synthetic CDS credit indices performed very well during month of December. The iTraxx Crossover index went from +265 bp at the end of November to +242 bp at the end of December.
Portfolio management team:
Philip Lindgren
Portfolio manager
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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. This is marketing communication.