Monthly Commentary - Pareto Global Corporate Bond
Tech companies that contribute in part to new solutions for the reality we face have soared on stock exchanges globally. High yield in the US also had a very strong month in July. Company reports for the first half of the year naturally confirm that the economy stopped completely for some time. However, many of the company forecasts we observe paint a picture of recovery. Most economies are now partially or completely open and demand for many goods and services has recovered strongly. The Fed drove real yields, a better measure of financial conditions, because it adjusts for inflation expectations, into negative territory for the first time since 2013. Issuance of investment grade and high yield in both Europe and the USA continued even during the usually calm summer month.
However, the pandemic has also accelerated some company decisions. The CEO for BP, for example, recently commented as follows: "The pandemic has created a world that pumps less oil, gets more of its energy from renewable sources and emits less carbon dioxide – exactly what he says BP should do."
Pareto Global Corporate Bond has continued to increase investments in renewable energy in both the US and Europe in names such as Hannon Armstrong, European Energy and NextEra Energy. All three names continue to perform very well. Another company in which the fund has long invested, is Eurofins. The company received its first official credit rating from Moody's (Baa3), an investment grade rating with a stable outlook. The rating reflected the analysis we have had for the company. This was very positive for the bonds owned by the fund; Eurofins bonds had a strong performance since the credit rating was announced on July 24th.
The fund had good inflows and also a strong development in July. Focus on ESG is still a strong factor in the market. In Pareto Global Corporate Bond we see many companies with a strong ESG profile having bright projections based on corporate guidance and observations on sales development. After a very strong price appreciation in the high-yield market over the past two months, we believe that coupons will contribute to a larger part of the total return for some time to come.
The fund participated in a few new issues during month of July, BBVA Green Bond, Intrum and Verisure.
In the secondary market, we sold part of Vulcan Materials and bought Faurecia and Encompass Health.
Synthetic CDS credit indices strengthened marginally during month of July. The iTraxx Crossover index went from +384 bp at the end of June to +376 bp at the end of July.
Portfolio management team:
Philip Lindgren
Portfolio manager
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Pareto Global Corporate Bond
The fund had good inflows and a strong development in July.
Pareto Nordic Corporate Bond
In July markets continued their credit premium contraction path and the fund delivered another month of positive returns to investors, although at a slower pace than the previous three months.
Pareto Global
We have been eagerly awaiting the second quarter figures. In economic terms, we assume that this was the bottom of the Covid-19 pandemic, when large parts of society were shut down.
Pareto Aksje Norge
The first half of 2020 was turbulent. Unusual suspense was therefore associated with the companies' presentation of half-year figures.
Pareto Nordic Equity
July was another good month in the stock market and for Pareto Nordic Equity. The market rose by just over three per cent and the fund by around five per cent.
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.