Primary focus on secondary market
April was a stronger month for risk assets overall than the previous two, although the geopolitical concerns remain in the background, including a trade war, relations with North Korea, the war in Syria and Russian sanctions.
First quarter results started to arrive towards the end of the month, and were generally as expected or even better. However, most of the companies in Carnegie High Yield Select will publish their interim reports in May.
Central banks still differ in their communication, with the US continuing to raise rates while the Riksbank held back and extended its interest rate path.
The new issue market was much calmer due to Easter and interim reporting, so there was more focus on the secondary market.
High Yield Select had a mixed month and fell 0.13 percent, but is up 0.51 percent so far this year. Unfortunately, Lebara once again had a negative impact on returns while the fund otherwise had a stable trend with no major surprises on either the upside or the downside. Lebara should have reported revised figures for the full year, but announced that this work requires more time, which naturally adds to the negative sentiment around the company. The company said that it will start negotiations with bondholders like us in order to redeem the bond early, but no details have yet been revealed.
Our fundamental approach still applies, that the main portion of the portfolio must comprise bonds with shorter credit terms and variable coupon rates, while we are exposed to a certain extent against longer credit terms where the bonds either pay a high coupon and/or we strongly believe the issuing companies will be able to significantly improve their risk profiles over time.
We still envisage that a normalised portfolio will have an underlying return of around 5.5–6 percent, a credit duration of less than 3 years and an interest duration of less than 1.5 years.