The primary market started moving when Teekay LNG, Kistefos and Heimstaden Bostad issued
The global trend has continued on the well-beaten path with the ongoing pandemic, less economic anxiety after moderate improvements in leading indicators, and companies and individuals still adjusting to a new reality. Although the virus is breaking out again in several places, there are daily reports of progress in the quest for a vaccine.
Combined with Q2 reports that exceeded expectations and the sustained support from central banks, this is driving global stock exchanges towards record levels. Once again, risk appetite reflects FOMO/TINA, but considering the discrepancy between financial markets and real economic development, it makes sense to think again about what will happen in the future when the support programmes are gradually phased out.
The gradual recovery over the summer, which continued during the month, was partially the result of a shortage of materials and primarily impacted companies with higher credit scores or high yield companies that clearly benefited from the spread of the virus. This has created a relatively large discrepancy compared to other Nordic high-yields, where investors have waited for the Q2 report cards before they were willing to buy the bonds. When the reports were released in August and the majority outperformed expectations, risk appetite returned and the market was traded up substantially. However, the question remains as to what will happen to margins when furlough support and deferred employers’ social security contributions have to be paid.
The primary market started moving when companies including Teekay LNG, Kistefos and Heimstaden Bostad issued. The new issues were made at levels that drove prices in the secondary market and we have reduced the exposure to names that delivered outstanding performance in the summer, including Volvo and Nokia. Following a two-year run-off period, we have also sold the last commercial gambling exposure in the fund after a strong price upturn in Catena Media.
The fund continued to recover and rose during the month by 1.62 percent, which lowered the downturn for the year to -3.64 percent.
Last year, we saw excellent risk appetite and strong fund inflows push credit margins down to record-low levels. The spread of Covid-19 is generating profound uncertainty and although we have seen recovery to a certain point, credit margins remain at attractive levels. We are, however, maintaining our conservative approach with a balanced and diversified portfolio with focus on liquidity. We will continue to focus on sustainable companies, which we are convinced are going to contribute to long-term returns.