The Federal Reserve has now delivered the first interest rate hike since 2018. Central banks in many parts have now begun adjusting interest rates due to rising inflation. Norway, the United Kingdom have also raised interest rates. For the market, uncertainty is usually a worse situation than more clarity. We have seen in the last weeks of March that the credit market has been strong. Flows to mutual funds have turned positive.
We've had meetings in New York with Wall Street banks. This is the first time since the pandemic began. If we sum up the discussions with the syndicate and the trading desk, it is with cautious optimism. Investment grade issues have had a very strong month where companies accept the reality with higher interest rates and most of the companies have strong balance sheets. When it comes to high yield, there is always a lag. Now that the market has stabilised, we can probably soon get more new issues even in high yield.
The fund ended the month with a slight increase. The second part of the month was very strong, with many funds having high cash balances, and the secondary market was very active.
We believe that Europe will be partly affected by the war, especially with energy supply. The United States does not have the same connection or geographical proximity at all, and we see that American high-yield names have strengthened in recent days. The fund has continued to be overweight in sectors such as the health sector and renewable energy.
The new issue market in high yield was not very active during March.
The fund participated in a new issue in March, and this was EQT Sustainable Bond. It will be interesting to follow how a private equity player can influence and contribute to a more sustainable development in the companies that EQT owns. In the secondary market, we added in Stora Enso and took in Wesco as a new position. The fund is classified as an Article 9 fund according to the SFDR regulation.
The synthetic CDS credit index tightened during March. The iTraxx Crossover index went from +343bp at the end of February to +338bp at the end of March.
Portfolio management team:
Philip Lindgren
Portfolio manager
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