Monthly Commentary - Pareto ESG Global Corporate Bond
Their stock prices fell drastically fell and several banks became insolvent over a two-weekend period. When Credit Suisse spiralled out of control, the contingent convertible instruments called AT1’s were deemed to have zero value by Swiss regulatory authorities. European authorities quickly re-assured the market after an initial sharp drop in European bank AT1’s that seniority in Europe remains for AT1’s relative to common equity.
The European Parliament voted after intense negotiations to approve a new law banning the sale of petrol and diesel cars from 2035. Time will tell, but it is an important step going forward.
The market is always in constant motion, but the past twelve months have been extraordinary by most historical standards. Aggressive rate hikes are starting to affect consumer behaviour and business conditions. The aftermath of the downfall of several large regional banks in the US affects commercial real estate both in US and Europe. Tightening financial conditions and pressure on interest coverage ratios will burden this sector for some time to come. We do not foresee an imminent recession, but the fund does have a defensive tilt both in terms of sector exposure and credit duration.
The fund participated in three new issues during the month. These were Sanoma 8%, IHO Verwaltung 8.75% Sustainability Linked Bond (SLB) and Nexans 5.5% SLB. We would like to re-iterate the drastically improved (from investors’ point of view) coupons from what we saw just 12 months ago.
ESG and sustainability continue to be a forceful theme and we are now seeing a development where companies must start to show more specifically what they are doing regarding sustainability in concrete numbers and not only through promises.
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 in March. The iTraxx Crossover index went from +414 bp at the end of February to +440 bp at the end of March.
Portfolio management team:
Philip Lindgren
Portfolio manager
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.