Monthly commentary Pareto ESG Global Corporate Bond
Fixed income coupons are at decade highs due to numerous rate hikes. At the same time, there is idiosyncratic risk in the market as some large companies have problems with financing and high indebtedness (Atos and Altice, to name a few). None of these companies are owned by the fund, but they are examples of the development we are seeing right now. Summing up our portfolio companies’ Q1 reports, it is clear that the economy is weaker. The focus for companies across the board is to have good cost control, improve the balance sheet, defend margins, and reduce indebtedness.
In terms of performance, May was a good month, driven by the good cash return and by both slightly lower market interest rates and tighter credit spreads. The current cash yield is expected to continue to increase when companies pay back older bonds with lower coupons and replace them with new ones that have higher coupons.
The new issue market for corporate bonds has been strong during the year, particularly in the US. The gross volume for high yield in the USA is around USD 150 billion so far in 2024. In Europe, high yield issuance has also been good, with approximately EUR 50 billion issued during the year.
The fund participated in several new issues and was also active in the secondary market. In terms of new issues, the fund participated in Organon, Berry Global, Fedrigoni and Sobi.
In the secondary market, the entire holdings in Getlink, Coor, Nemak, Huhtamäki and Swedbank were sold, while we scaled down in Picard, Belden and Schaeffler, among others.
The fund is classified as an article 9 fund under the SFDR Disclosure Regulation.
The synthetic CDS credit index tightened. The iTraxx Crossover index went from +315 bp at the end of April to +296 bp at the end of May.
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.