Monthly commentary Pareto ESG Global Corporate Bond
As we look back and sum up the year 2023, we celebrate the best year for Pareto ESG Global Corporate Bond since its launch in 2015.
2023 was a year that had shifting market sentiments, with the American regional banking crisis in March and then rising long-term interest rates until October. The US economy surprised in a positive way throughout 2023, with continued low unemployment rate and solid growth. Europe, and especially Germany, had declining economic activity, especially in the last half of the year. The forecasts for 2024 are also weaker, and therefore the market has priced in interest rate cuts in 2024 both for the US but also for Europe. Whether the US succeeds in achieving a soft landing remains to be seen, but global corporates have a better ability and availability to refinance during 2024. The very low level of LBO activity we observed during 2022 and 2023 may improve if this positive market climate persists.
During 2023, approximately USD 180 billion in US high yield and EUR 53 billion in European high yield were issued. A large proportion of all activity was refinancing of existing debt. In the corporate bond market, coupons are significantly higher than in many years, which bodes well for 2024 as well.
As far as sustainable finance is concerned, the big event was COP28 in Dubai. Many details are complicated, but if we are to look at the whole, we can mention a couple of themes. Increased focus on energy efficiency solutions to complement renewable energy. The cost and safety of renewable energy will be decisive for how quickly the expansion will take place in the future.
The fund had net inflows and participated in several new issues during the month, such as Synlab, Loxam, Hannon Armstrong and NextEra Energy.
Synlab is a new holding in the fund for 2023. The company is a global player in medical diagnostics. Synlab has a large share of revenue from the regulated healthcare sector. Growth during Covid-19 has slowed, and the company is now adjusting its business model for a more normal development going forward.
In the secondary market, we sold our position in Klöckner Pentaplast.
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 tightened. The iTraxx Crossover index went from +370 bp at the end of November to +315 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.