Monthly Commentary - Pareto ESG Global Corporate Bond
In recent years, we have lived in a stimulus bubble on a scale never seen before. Now that these stimuli are being removed and the world has witnessed one of the most aggressive global rate hike cycles in the last 40 years, the effect was strongly negative for most asset classes. War in Europe, the Covid situation in China and galloping energy prices have created major challenges for companies around the world.
New issue markets were strongly affected by the sharp increase in global interest rates and the ensuing volatility. American high yield issuance in 2022 fell by almost 80% compared to 2021. Now that the interest rate situation is slightly more stable, although of course at higher levels, companies globally will issue more in 2023 than in 2022; such is our view. These upcoming bonds will have significantly higher coupons than we have seen in a very long time and therefore there will be many attractive opportunities in 2023. The current yield in the fund is now at historically high levels.
The fund has continued its sustainability journey throughout the year. The investment team strives to always be at the forefront of sustainability practices and market standards. Earlier this year, the Nordic Swan Ecolabel, with which the fund has been labelled since 2018, released new tougher requirements for fund’s licensees. The team has worked on strengthening exclusion, inclusion criteria as well as engagement with holding companies and better transparency for investors.
In November, the fund became the first fixed income fund to achieve the fulfilment of these criteria and receive the 2.0 license generation of the Nordic Swan Ecolabel. We strive to invest in companies which will be the winners of tomorrow, and which provide solutions for a better future.
December was a cautious month in which, after the interest rate hikes by the Federal Reserve and the ECB in mid-December, activity slowed down significantly. The Federal Reserve has now raised the short-term rates 4 percentage points since January.
During 2022, the fund performed significantly better than the Bloomberg Global High Yield (around 5 percentage points better) and the Global Investment Grade Index (around 7 percentage points better). Having said that, the development for the fund was one of the toughest ever. The big drop happened in the first half of the year, while the last half of the year developed well.
The fund participated in a new issue during the month of December: Intrum, which had to pay 10% to issue a roughly 5-year bond.
In secondary trading, we increased in Wesco, Cerba Healthcare and OI-Glass.
The strategy going forward remains having a strong focus on companies that contribute with sustainable solutions here and now.
The fund is classified as an Article 9 fund under the SFDR Disclosure Regulation.
The synthetic CDS credit index widened during December. The iTraxx Crossover index went from +458 bp at the end of November to +475 bp at the end of December.
Portfolio management team:
Philip Lindgren
Portfolio manager
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.