Monthly commentary Pareto ESG Global Corporate Bond
Since the end of October 2023, economic conditions have been favourable, with a positive mix between growth and inflation. There is of course some uncertainty going forward and growth in Germany has even been negative in the last quarter. The big positive surprise continues to be the US, which came up with revised GDP growth figures which were a strong 3.2% for Q4. While the PCE inflation gauge showed a continued downward trend, it is still above the level where the Federal Reserve can conceivably lower the policy rate.
The market is now pricing in later interest rate cuts in both the US and Europe. This contributed to the US 10-year interest rate rising from around 3.90% to 4.25% during the month. Credit spreads developed well and decreased in both the US and Europe.
This positive market climate has contributed to large volumes in the new issue market for corporate bonds globally, especially in the US. US high yield gross volume is now $58 billion YTD 2024. Europe has seen significantly less volume, but strong names have no problem issuing.
Earlier this month, EU legislators reached a provisional agreement on a regulation on ESG rating activities. Given the influence of ESG ratings in sustainable finance markets, the regulation intends to increase the transparency and comparability of ESG ratings. ESG rating providers will need to comply with minimum standards regarding business conduct, conflict of interest management, and transparency.
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 fund participated in several new issues and was also active in the secondary market. Regarding new issues, the fund participated in Scatec Green Bond, P3 Group S.àr.l green bond, Amer Sports, Coor, Wesco and Forvia.
In the secondary market, the entire holding in Lowell and IHO Verwaltung was sold. New names in the fund from the secondary market were Western Digital, Nokian Tyres and Open Text Corporation.
Open Text Corporation is a leading global tech company headquartered in Canada assisting companies with their digital transformation processes. The company was created to partner with Oxford University in order to create the first online Oxford English dictionary in 1991
The synthetic CDS credit index tightened. The iTraxx Crossover index went from +325 bp at the end of January to +305 bp at the end of February.
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.