Close

Upbeat company news

The strong performance continued, albeit at a slower pace as local credit margins converge towards their European counterparts. And even though the number of obvious mispricings is falling, the difference remains attractive. The month was characterised by strong primary market activity ahead of the summer, and some positive company news.

Carnegie High Yield Select

One sustained trend is the price difference in the high yield segments, where smaller issues still yield significant premiums compared to before the pandemic without the credit risk increasing. This means that the expected risk-adjusted return is more attractive, all else equal, even as it starts approaching underlying coupons of around 6-7 percent.

During the month, rating news continued to be the driving force, and after IB Invest refinanced its bond, it was Transcom’s turn. The company’s rating was downgraded after Covid-19 and the bond was traded for a long time with a discount despite both the underlying business and the market recovering. The company was efficient in realigning itself, and we increased our holding when, after a rating upgrade, the company announced early refinancing and paid approximately a 2 percent premium. We continue to see good opportunities to find attractively priced companies that can further contribute to the portfolio’s return.

Humble continues to impress with its acquisition growth, and in connection with new purchases the capital structure has been adjusted to the new scale by issuing another bond. The company’s strategy to acquire with a combination of cash, shares and earnouts has enabled it to keep its debt down while managing to grow profitably. With its expansive strategy, the bonds provide an average return of almost 8 percent, which we see as very attractive in the current climate.

The excess return obtained so far during the year will, all other things being equal, decrease in the future and during the remainder of the year the expected return should return to reflecting the underlying coupons. In the short term, however, we are optimistic about being able to create a certain excess return from company-specific factors.

 

More articles

Interesting investment environment for the long term
Carnegie High Yield Select

Interesting investment environment for the long term

Strong Q3 reports were overshadowed to some extent by intense activity in the primary market, inflationary effects that are feared to be longer-lasting, and new mutations of Covid-19 impacting risk...

Daniel Gustafsson 6 December 2021
Volatile equity markets in September
Carnegie High Yield Select

Volatile equity markets in September

September was volatile for stock markets, with global equity indices falling 3–5 percent. Global credit markets were more mixed. Indications of a reduction in support purchases, hawkish signals and varied...

Daniel Gustafsson 5 October 2021
The market is underestimating credit quality
Carnegie High Yield Select

The market is underestimating credit quality

After the strong start to the year, with declining credit margins and positive company news, we are starting to approach historical credit margins in the Nordic region, which means that...

Daniel Gustafsson 4 June 2021