More cash and focus on liquidity
February began strongly, with increased risk appetite. Stock exchanges widely rose after a somewhat weaker end to January. However, sentiment swung sharply in the last week of February after news of the coronavirus spreading outside China and with the infection numbers in Italy reported to be rising steeply.
The local Nordic credit market has so far fared slightly better than its European counterparts, where it was mainly high yield and subordinated credit being corrected, reinforced by unilateral selling flows and with ETFs setting the tone. The price correction of the Nordic traded names did not come until the end of the month. Although credit spreads have widened, things are still relatively expensive from a historical perspective. However, it is possible to selectively identify interesting buying opportunities in names that are being overly punished.
Primary activity in the Nordic credit market was relatively high until news of the advancing coronavirus put a stop to new issues. We invested early in the month in new issues from real estate names Fastpartner, Heimstaden and Niam. Our main activity in the secondary market was to reduce a number of holdings, so the proportion of cash is higher. Our conservative approach in the current risk climate has meant that for a period we have increased our focus on liquidity both in order to manage possible flows and to be able to act on interesting investment opportunities that arise when, in our opinion, certain names are unduly impacted.
Last year, we saw very good risk appetite and strong fund inflows pushing down credit margins to record lows. Uncertainties such as the continued spread of the coronavirus and various geopolitical risks mean that we are maintaining our conservative approach with a balanced, diversified and above all liquid portfolio focusing on short and medium-term credits. We also continue to focus on sustainable companies, which we are convinced will contribute to the long-term return.