Monthly Commentary - Pareto ESG Global Corporate Bond
Geopolitical tensions do affect the world economy, but the extent is very difficult to quantify. We do observe though that global relations have deteriorated in recent years, but despite this the world economy has maintained a relatively strong growth rate. As we look towards 2024, we see that there is also a certain slowdown in the US, where growth has exceeded expectations. US GDP for the third quarter increased at an impressive 4.9% growth rate. The American auto workers’ union has been on strike for just over a month, which will certainly affect the fourth quarter's figures somewhat.
The US 10-year yield temporarily traded just above 5% during the month but has now stabilised below 5%. European interest rates have traded more sideways during the month. The ECB chose to pause interest rate hikes at their October 26th meeting for the first time in 15 months. There are many indications that the coordinated global rate hike cycle is very close to peaking.
As for the credit market, credit spreads widened in both the US and Europe. The Bloomberg global investment grade and high yield indices in USD lost about 1 per cent during the month. The fund outperformed both indices during the month. The new issue market slowed significantly during the month of October. It was the second weakest October issuance in US high yield in the last 5 years. Having said that, we see that companies with a longer track record and diversified funding base have good access to the bond market.
The fund did not participate in any of these new issues during the month. Many of the companies that issued were from the energy sector.
The fund had positive net inflow and we used inflows to add to several existing positions such as Pentair, Wesco, Modulaire, Mobico, EQT and Crown.
Yield levels in fixed income are now more attractive than they have been for a very long time.
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. The iTraxx Crossover index went from +434 bp at the end of September to +451 bp at the end of October.
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.