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Volatility creates attractive investment opportunities

Year-end is approaching, and the market has become somewhat saturated after the autumn’s high pace of primary transactions and relatively neutral fund flows. Along with historically low credit margins and concerns about new virus mutations, November therefore ended somewhat weaker.

The US Federal Reserve chief also announced at the end of the month that it was time to retire the word “transitory”, meaning that inflation is here to stay rather than transient. This caused interest rates to rise and risk appetite to falter.

All this together means that there is a risk of some volatility in the future, and we are therefore working actively to maintain a balanced and liquid portfolio, but at the same time see good investment opportunities in excellent companies where pricing is judged to be attractive due to current market dynamics rather than changed creditworthiness. On that theme, all of the portfolio’s holdings have now reported results for the third quarter, and this can be summed up with generally solid reports from a credit perspective with stable or somewhat positive outlooks.

During the month, we looked at many new transactions and chose to invest in Storskogen’s new bond while maintaining some exposure to the company’s existing bond. This is a typical example of how we work to allocate the portfolio by being happy to invest in several maturities in companies we like to increase diversification and liquidity. We also invested in wood flooring manufacturer Kähr’s sustainability bond, a transaction that met many of our requirements in terms of price/credit margin, loan terms and sustainability.

Given the current outlook for interest rates, our work to continuously reduce interest rate risk in the portfolio has turned out well and we will gradually continue to do so. With a short-term increased risk of volatility, the focus is on liquidity with continued exposure to shorter-term credits. But as usual, we spend absolutely the most time analysing and finding the right companies, which in the long run is also crucial for the portfolio’s development, regardless of short-term volatility.

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