Monthly Commentary - Pareto ESG Global Corporate Bond
As the saying goes, history repeats itself, but in different shapes and forms. The memory of Long-Term Capital Management's collapse reverberated across Wall Street last week of March. A little-known hedge fund, Archegos Capital Management, imploded with some staggering levered bets gone awry. When in trouble, double ...
The fund and the credit market were not much affected by these events. The big focus has been on the continued rise of US long-term interest rates, and that the vaccination rates in Europe have been particularly disappointing. The "vaccination trade" has slowed down somewhat, but most major economies are still showing modest growth. Hopes remain that a wider opening of the economies will come somewhat later, but with positive effects.
New issue volumes were very strong in both investment grade and high yield in March. However, performance was negative for Barclay's global investment grade index and Barclay's global high yield index.
The fund had a positive development despite some headwinds globally. We have been heavily underweighted USD issues throughout the year, and this has been positive for the fund's performance. Now that long-term interest rates have risen a lot in the US, more opportunities will arise in the future.
Interesting news from Volvo Cars, which decided that all its 40,000+ employees, regardless of gender or where they work globally, will be entitled to 24 weeks' paid parental leave. "We want to create a culture that supports equal parenting for all genders," said Håkan Samuelsson, chief executive. "When parents are supported to balance the demands of work and family, it helps to close the gender gap and allows everyone to excel in their careers."
Regulation on sustainability of funds came into force on March 10 this year, where information must be published regarding the fund's integration of sustainability in management. Pareto ESG Global Corporate Bond is classified as an Article 9 fund ("Dark Green") according to SFDR. The fund's strategy has not changed, but the classification is a reflection of the already strong integration of ESG in the management.
The fund participated in several new issues, such as Hapag Lloyd, Småkraft, Ahlström Munksjö and Faurecia. We have invested in and followed several of the companies for a long time.
Hapag Lloyd is a new name in the portfolio. Through the company's first sustainability-linked bond, the company has financially linked a reduction of 60% CO2 by 2030. We will follow the development closely, which will be published annually. In the secondary market, we sold bonds with lower coupons and yields, like Nasdaq, Stora Enso and Shaeffler.
Looking ahead, we believe that the greater part of the total return in fixed income will come from coupons and carry, and a smaller share from price movements. A well-diversified, global sustainable corporate bond fund is well positioned.
Synthetic CDS credit indices improved slightly during month of March. The iTraxx Crossover index went from +265 bp at the end of February to +254 bp at the end of March.
Portfolio management team:
Stefan Ericson
Lead portfolio manager / Branch manager Stockholm
Philip Lindgren
Credit analyst
Ingrid Johanne Nygaard
ESG analyst
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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.