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Monthly Commentary - Pareto ESG Global Corporate Bond

The big news was characterised by the fact that the spread of corona infections in India increased sharply and the focus globally shifted to fact that large differences exist in Covid-19 vaccination rates between the richer countries in the world and the poorer ones. This may affect global growth somewhat down the road. The global gap between the very rich in the population and the rest of the population has also widened.

Many entrepreneurs have been very successful in recent years through innovation. One example is the founder of Spotify, Daniel Ek, who recently placed a bid for the Arsenal Football team. Innovation and growth are of course the engine of the global economy, but too large of a wealth difference may contribute to potential social tensions.

Not entirely unexpectedly, the number of "Socially Linked Bond" issues is now increasing sharply. Companies want to demonstrate their development in this area in addition to corporate environmental work. The trend is basically positive, but we examine carefully to check that the companies demonstrate concrete development and not just point towards policies.

Long-term interest rates in the US traded sideways during the month of May, as did the credit index. The market evaluates more concrete data concerning the broader part of the economy. Unemployment remains slightly too high in both Europe and the United States. Therefore, we believe government stimulus will continue for some time to come.

New issue volumes remain very strong in both US and European high yields. The economy is improving even in sectors that suffered during the pandemic. These companies now have access to capital in a way not seen since the pandemic started. It is a sign of strength for global growth where incentives can now be directed more towards investment projects such as infrastructure instead of providing support to vulnerable industries such as tourism. Europe has doubled its new issue volume in high yield this year from 2020.

The ESG development remains strong in both Europe and the United States. Europe remains a leader in terms of volume and number of issuers. However, US investment in renewable energy will probably contribute to a large increase in capital raising for sustainable financing in the US.

The fund had a stable development during the month. Most of the company reports coming in for Q1 showed a strong recovery and continued bright prospects. However, the global spread of infection is a cause for concern, and we have remained selective in the new names we have bought into the portfolio. We keep portfolio duration at a lower level due to concerns that the inflation rate is rising.

With increased capital, the fund participated in a number of new issues, such as EQT social bond, Cerba Healthcare and Ericsson and Danfoss. A new name in the portfolio is EQT.

EQT is a leading private equity company with operations globally. The fund owns bonds in a number of companies owned by EQT. EQT will work to ensure that the companies they own and themselves strengthen several social aspects. Development is measured and controlled through this social bond. We will follow developments closely at both EQT and also the companies EQT is an owner of.

In the secondary market, we bought Grupo Antolin. We are increasing our position in the company. S&P recently raised the company's credit rating and the company has shown a continued strong recovery.

Synthetic CDS credit indices were unchanged during month of May The iTraxx Crossover index went from +249 bp at the end of April to +248 bp at the end of May.


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