Close

Nordic HY market appears very attractive

Covid, Covid, Covid! After dominating everything for almost a year, vaccine approvals and launches drove risk appetite this month as investors glimpsed a light at the end of the tunnel.

The fact that Britain’s exit from the EU finally culminated in an agreement after 4.5 years of negotiations and that the new US president is called Joe Biden mean that dark clouds have dissipated and there is less uncertainty in global markets. Add to this the willingness of both the ECB and the Fed to support the financial markets, and the result is a combination that is driving credit margins down and increasing the risk appetite.

Locally, the combination of a strong new issue market and a lack of inflows has contributed to keeping credit margins at attractive levels, and the price discrepancy between Nordic and continental HY has increased. This makes the Nordic HY market appear very attractive versus other risk assets and segments. The high level of activity in the primary market continues to create interesting investment opportunities for the selective, and even if the market dynamics are more or less favourable for the fund, the performance of the underlying companies is the key to long-term returns.

During the month, both Axactor and EG7 offered upbeat news. Axactor announced a full recapitalisation, with its shareholders contributing almost EUR 100 million in equity and assets, while rolling forward the bond on what we regard as very attractive terms. The bonds, which as recently as a few months ago were traded at a 4 percent discount, were redeemed at a 2 percent premium and contributed 0.15 percent to the fund’s return during the month. EG7, which has grown strongly since the issue, announced a giant acquisition and, as part of this, an overall review of its financing where it redeemed the bond at 106 percent.

The fund performed well and rose 0.95 percent, taking the year’s return to 1.81 percent.

The focus of the fund is to invest in companies that deliver high underlying returns where the performance of these companies is also the key factor in long-term returns. Short-term, however, the fund is not immune to changes in market sentiment, as the spread of Covid-19 has also shown. In spite of a strong recovery, credit margins remain at attractive levels. Focus going forward will be on maintaining a diversified and liquid portfolio of companies that we assess as having a sustainable business model.

More articles

Underlying yield: 15 percent
Carnegie High Yield Select

Underlying yield: 15 percent

The initial fall in prices was similar across the board, but pricing in April increasingly reflected underlying operations and the impact of Covid-19. That said, there are still big differences...

Niklas Edman 7 May 2020
Important characteristics going forward: Long-term stance and patience
Carnegie High Yield Select

Important characteristics going forward: Long-term stance and patience

Events in March were about nothing other than the global spread of the coronavirus and its impact on both the real economy and risk sentiment. The effects of this have...

Maria Andersson 6 April 2020
Focus on the secondary market
Carnegie High Yield Select

Focus on the secondary market

The year started with a continuation of the previous year’s strong sentiment, but quickly soured with US-Iran military tensions and the Chinese coronavirus spreading globally. Although the future is impossible...

Maria Andersson 4 February 2020