What most people envisioned in January in terms of market returns for the first half of 2022 has unfortunately not been fulfilled. On the contrary, we had an outcome that is significantly worse than most could have imagined. War and sharply rising inflation rates were a very bad combination for the world's markets apart from commodities. The US 10 Year Treasury bond index had the worst first half in over 100 years, the S&P 500 had the worst overall return for the first half in 60 years. There are darker statistics to mention, but history has shown that man has recovered from countless challenging periods. We must absolutely not underestimate what happens, because market dynamics remain challenging.
As for the credit market, issue volumes have fallen sharply, with US high-yield issue volumes falling sharply compared with 2021 and having the weakest half of the year since 2009. If we are to highlight some positive aspects regarding companies in the high-yield market, there is no pressing need to borrow in the market at this time. Many companies seized the opportunity given during 2021 to prefund and refinance. Liquidity is generally good and interest costs in terms of interest coverage ratios (ICR) are generally low at this stage.
However, we believe that growth will decline and have positioned the fund's exposure defensively. The health sector, renewable energy and forestry companies are among the largest exposures to the fund. Half-yearly reports that will come soon will be very interesting to follow.
The fund's development during the first half of the year and also in June is better than global, American and European high-yield indices. However, we are humbled by the fact that the fund has fallen during these periods.
As mentioned, there were very few issues in June. However, we were involved in a couple of new issues. One was in Eurofins, a company whose bonds we have been investing in for many years. The company bought back a hybrid bond and issued a senior bond. The other company we bought in a new issue was Pentair. The Pentair business is built on delivering smart, sustainable, energy- and resource-efficient products and solutions for water management. In the secondary market, we increased in Iqvia.
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 during June. The iTraxx Crossover index went from +439bp at the end of May to +584bp at the end of June.
Portfolio management team:
Philip Lindgren
Portfolio manager
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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.