Focus on a liquid portfolio
Initially, the entire credit universe was traded down steeply, regardless of industry, although the magnitude was greatest for higher risk credits, known as high yield.
Tourism and oil-related names were hit especially hard given the travel restrictions due to the coronavirus and the ongoing oil price war. However, we are now starting to see prices stabilising at slightly higher levels and some segmentation of credits, with names in more stable industries and with good collateral being slightly rewarded in terms of price.
Despite a less positive adjustment of bond prices at the end of the month, we still see these levels as very attractive from a historical perspective, which means we also see good opportunities for the long-term investor.
Monthly Comments, Corporate Bond
Our focus in terms of fund management during the month has been primarily on maintaining a liquid portfolio and being able to meet fund flows through having plenty of cash. This means that we have also had a good ability to meet all flows while maintaining the fund’s risk mandate by a good margin, with an average credit rating of at least BBB- (investment grade).
During the month we acted as a seller in several names, which also led to a reduction in exposure for many of our holdings. The major changes made were that stable electricity network company Ellevio joined the top-10 holdings along with Klarna and investment company Latour. Forest company Bergvik disappeared from the top-10 and is no longer a holding after it redeemed its bond, while Teekay LNG and DSV no longer count among the fund’s ten largest holdings.
The current credit margins are at historically attractive levels, and this is reflected in the fund’s underlying coupon return, which currently stands at as much as 7,8 percent. We consider this to be very attractive given the fund’s weighted risk mandate, which averages BBB-. To give an indication of where the price situation is now, Handelsbanken’s subordinated credit gives just over 10 percent in coupon returns with an expected redemption in one year, compared to the previous 1–2 percent.
The exceptionally weak market has also affected the fund’s return, which amounts to -12.59 percent for March. Since the start of the year the fund’s return has been -12.45 percent.