Monthly Commentary - Pareto ESG Global Corporate Bond
The Federal Reserve and ECB both raised interest rates by 25 bps. The ECB has now raised interest rates overall by 425 bps since July last year. Japan surprised by gradually allowing 10-year yields to rise above the current ceiling of 0.5 %.
The issuance volume in both the US and Europe decreased during the summer months, for natural reasons. Companies entering the market represented several different sectors.
An interesting development concerns companies that issue sustainability-linked bonds (SLB’s). We will see in the future how the companies handle their sustainability goals.
Some €4,400 million of euro HY SLBs were issued during the first six months of 2023, against €1,600 million over the same period last year. The financing format continued to show some attraction for both issuers and investors: as a share of the € HY primary market, it represented 16% of new bonds, compared to 12% one year ago.
One of the fund holdings is Picard SLB 2027. The bonds have shown a solid performance since the beginning of the year (17.6% total return), driven by the good annual results reported by the group. Despite the inflationary environment, Picard has been able to limit the impact of the increase in its costs (energy and labour) on its operating margins thanks to relatively good pricing power and resilient demand for its wide range of frozen products.
The fund’s development was very strong during the month of July.
The fund participated in a new issue during the month, Profine, an existing holding in the fund. The company bought back existing bonds at a premium and issued a new 5-year bond.
There was positive net inflow into the fund, and we increased our holdings in IQVIA, Ørsted, Ashtead, Verisure, PTC and Eurofins.
The interest rate increases that we mention here mean that fixed income products are now more attractive than they have been for a very long time.
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 +402 bp at the end of june to +378 bp at the end of July.
Portfolio management team:
Philip Lindgren
Portfolio manager
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