Speaking of purely financial conditions and other world economic data, we would categorise 2021 as a very good year. By and large most corporates around the world also continued to see improvements. Earnings improved, especially during the first half of the year, and net borrowing fell, causing net leverage on a consolidated level to fall in both Europe and US.
The strong momentum was dented when severe disruptions in global logistics chains and transportation interfered. There were vast delays in many ports around the world, production fell globally and shortages of especially semiconductors caused production delays.
Another negative result (for consumers and some companies) of the strong economy was much higher energy prices. On the flip side of that coin many companies have benefitted from higher energy prices.
The pandemic caused by Covid-19 infections stands out in stark contrast to the economic progress. Several mutations, combined with wariness of continued shutdowns and some resistance to vaccines, resulted in record global Covid-19 deaths during 2021. Medical experts, however, point towards less severe illnesses from the omicron virus strain. We all hope for a better 2022 regarding the pandemic.
The credit market performed well for the main part of the year. Credit spreads widened rapidly during October and November, but the market recovered well during December, the last trading month of the year. The new issuance market was also very active, except for late November and December. The US priced almost $9 billion of high yield deals in December, giving a 2021 total of approximately $520 billion in new issued volume.
The fund performed well in December. The first half of the year was uneventful, whereas the last six months were more turbulent as inflation picked up and Federal Reserve signalled that rate hikes were likely in 2022. The fund also gained in the last six months of the year when credit spreads widened. The fund has positioned itself with a slightly lower interest rate duration as we forecast and hope that the Fed will come through and raise short-term rates in the US.
There were no new issues bought into the fund in December as the new issue market slowed substantially towards the end of the year.
Sustainability and ESG focus have continued to grow in importance. In early November many world leaders convened in Glasgow for COP 26 to establish more global agreements on climate-related matters.
As for the fund industry, many new regulations continue to be established with the overriding goal of steering financing towards better solutions for tomorrow.
The fund is classified as an Article 9 fund according to the SFDR regulation.
The synthetic CDS credit index gained during December. The iTraxx Crossover index went from +286bp at the end of November to +243bp at the end of December.
Portfolio management team:
Philip Lindgren
Portfolio manager
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