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New exposure to Volvo Cars

After a relatively strong market during the year as a whole with increasingly tighter credit margins, we experienced a period of somewhat weaker development in late autumn, along with a number of outflows from American and European High Yield.

This has also impacted loans in the world’s emerging markets and because American long rates also moved upwards, November was a somewhat weaker market than we have become accustomed to.

A period of consolidation after a period of a strong market is actually logical and, regardless, 2017 is going to be a record year for new issues by issuers in emerging markets. However, a large share of the issues may be financed by bonds heading for maturity and by underlying coupons. In addition, many companies have elected to redeem outstanding bonds early because they now see a good opportunity to extend their time to maturity. So, in terms of the need for net financing, it was actually greater during the period of 2012–2014, even if we post a record year in absolute numbers this year.

A bond we owned in the Brazilian forestry company Suzano was redeemed early during the month and at the end of November, our holdings in Chinese carmaker Geely were also redeemed. This is a company to which we have had exposure since we started the fund and we are very pleased with the development we have seen in recent years. Unfortunately, they have not issued any other USD bonds and our exposure to the group is now through Volvo Cars, which has the same Chinese principal owner as Geely. As it happened, Volvo Cars issued a new bond in EUR in November that will mature in 2025. We do not, however, think the long duration was worth the price, so we instead increased the holding in the company’s bond in SEK that matures in 2022.

The portfolio as a whole fell back slightly during the month and November ended with a downturn of 0.10 percent.

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