Monthly Commentary - Pareto Global Corporate Bond
Concerns about Covid-19 in particular finally became apparent in risk assets in the last two weeks of the month. Volatility increased and nervous investors pressed the sell button in several asset classes. The credit market in both the US and Europe declined slightly, as did the fund. Market movements are healthy after a long period of strength. We also see that companies around the world have access to the bond market on a broad front. A broad base of sectors has used the bond market, which is very positive.
The holdings in the fund are very solid overall and we have strong confidence in a positive development in the future. The focus on sustainability has intensified after Covid-19. Green Bonds' issued volume is at a record high this year. The management is trying to use the secondary market for minor changes in the portfolio and continue to prioritise the goal of a clearly diversified credit portfolio towards globally leading players backed by a solid credit background and a prominent ESG profile.
The issue market has been active, and the fund has participated in both the HY and IG segments to continue the portfolio work and spread the holding risk across both sectors, geography and specific names. New names in the fund during September from new issues are companies such as: Nielsen (B +), AVAYA (B), Johnson Controls (Green Bond, BBB), Munich RE (Green Bond, A), and KION (BB +).
KION is a global company in industrial forklift trucks and logistics vehicles. Logistics is playing an increasingly prominent role and sustainable transport solutions are a top priority.
Expectations of returns in the fund will in future be dominated by cash returns, or coupons. Although price movements will continue to some extent and are healthy, the importance of finding competitive coupons will be vital for a good return for many years to come. At the time of writing, the average coupon is 4.5%.
Synthetic CDS credit indices widened during month of September. The iTraxx Crossover index went from +322 bp at the end of July to +355 bp at the end of August.
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.