Monthly commentary Pareto ESG Global Corporate Bond
The credit markets finished the last two months of 2023 on a very strong note. This year therefore started somewhat cautious and tentative. Credit spreads widened in the first half of the month and interest rates rose in both the US and Europe. What is a very positive development is that the new issue market has started the year very strongly, especially in investment grade. Record volumes so far this year and large volumes trading in the secondary market. Within high yield, US supply is in line with historical figures, while Europe has started the year with a higher issue volume than in the last five years.
We believe that "carry and compound interest" will be one of the biggest contributors to the total return in 2024. With a high probability, central banks will lower policy rates in 2024. Market pricing has shifted from March to June for the potential first interest rate cuts from various central banks. There are large inflows globally into fixed income funds, largely due to the markedly improved cash yield compared to recent years.
The flip side of the coin with increased interest rates is, of course, consumers and companies who pay more for loans than in a very long time. Many global companies have ongoing maturities and thereby have a more balanced increase in financial costs.
The fund had net inflow during the month of January and participated in several new issues during the month, such as Schaeffler, Hannon Armstrong Green Bond, Eco Material Green Bond, ZF Europe Green Bond, Islandsbanki Green Bond, Berry Global and Fedrigoni.
In the secondary market, we increased in Wesco, Seche and Scatec.
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 somewhat. The iTraxx Crossover index went from +315 bp at the end of December to +325 bp at the end of January.
Portfolio management team
Stefan Ericson
Lead portfolio manager / Branch manager Stockholm
Philip Lindgren
Credit analyst
Ingrid Johanne Nygaard
ESG analyst
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.