Monthly Commentary - Pareto ESG Global Corporate Bond
Interest rate increases have continued pouring from several central banks around the world. We also have the political situation with war in Europe and harsh rhetoric from China’s leader Xi Jinping as he began his third term as the leader of China. With that background for the month of October, the market took all this negative news very well and it was a strong month. Stock indices in most regions except China performed well. Credit spreads narrowed and the new issue market returned, mostly in investment grade in the US and in Europe, but we saw high-yield supply as well. US high yield alone had $3.7 billion in issued volume, which is 85% lower than October 2021. Year to date there has been $90 billion issued compared to $415 billion in 2021.
Inflows to high-yield funds in the US were $4.6 billion during the month. When we include coupons, maturities and historically low supply of new issuance, we begin to get a significantly better market balance. Volatility has decreased and this also contributes strongly to an improved sentiment.
Company reports continue to show a consensus view; higher input costs regarding most things where higher salary costs are mentioned more in the communication from the companies. We see a slowdown in order intake from many companies, but the vast majority are well prepared and have gone through several cycles over the years. Net debt and interest coverage ratios as a whole in both Europe and the US are still historically strong.
The fund performed well during the month of October and rose 1.8% - 2% depending on the currency share class. The Bloomberg global high yield index rose 2% and global investment grade fell -0.5%
There was little activity in both the primary and secondary markets. The fund sold Ball Corp and one company, Frontmatec, redeemed bonds early.
Credit spreads ended the month lower, while interest rates rose across the curve in the US and Europe.
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 narrowed during October. The iTraxx Crossover index went from +642 bp at the end of September to +556 bp at the end of October.
Portfolio management team:
Stefan Ericson
Lead portfolio manager / Branch manager Stockholm
Philip Lindgren
Credit analyst
Ingrid Johanne Nygaard
ESG analyst
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