Investments in fund units are associated with risk. Past performance is no guarantee for future returns. The money invested in a fund can increase and decrease in value and it is not certain that you will get back the full amount invested. No consideration is given to inflation.
An actively managed fixed-income fund with a focus on corporate bonds issued in the Nordic countries. With its broad mandate, the fund has a bigger toolbox to better adapt to different market scenarios. The fund invests across the entire fixed-income capital spectrum.
The fund invests mainly in Nordic fixed income securities. The fund applies negative screening for sustainability criteria and consequently avoids long positions in companies that produce tobacco, alcohol, commercial games for money, pornography, coal, or weapons. Derivatives are used in management to protect fund capital and increase return opportunities. The fund is expected, over time, to have low co-variation with the equity market and may thus both raise the expected return and lower the expected risk in a traditional equity and fixed income fund portfolio. In structuring the portfolio, strong emphasis is placed on spreading risk and preventing any individual holding or sector from having excessive influence on fund performance. Investments are based on fundamental analysis of individual companies and traditional macroanalysis. The risk level will vary depending on Catella’s assessment of prevailing market conditions. The fund’s target is to generate annual return of 3-5 % with a standard deviation of 5% over time.
We still believe that the return potential is greater for higher-risk investments, and that more creditworthy investment grade companies have weaker prospects of generating returns in the coming year
Thomas Elofsson, 2019-12-31
Fund manager comment
The Swedish Riksbank raised its repo rate in December, as expected, thus consigning negative interest to the history books. In our assessment, the bar for returning to negative policy rates is now very high. In a time of both weakening economic activity and inflation, asset purchases are now the Riksbank’s main tool for monetary stimulus. One consequence of this is that pricing in the fixed income market is far too aggressive, and we expect bonds with maturities over 2 years will need to be re-priced, resulting in higher interest rates.
We believe that 2020 may be the year when fiscal policy is shifted in a direction that entails more stimulus, and this applies to both Sweden and the rest of Europe. The United States holds presidential elections this year, and a one likely scenario is that there will be a contest for which of the candidates can promise the most fiscal stimulus. Larger budget deficits will lead to a greater supply of government bonds and, at a time when central banks are already buying a large part of the net supply of bonds, this realistically ought to lead to long-term interest rates being pushed upwards. An improved economy usually leads to a lower likelihood of defaults on corporate bonds, resulting in narrower credit spreads. Countering this, the higher interest rates that ought to follow from a stronger economy risk putting upward pressure on credit spreads from today’s historically low levels. All in all, we still believe that the return potential is greater for higher-risk investments, and that more creditworthy investment grade companies have weaker prospects of generating returns in the coming year. That said, there are risks and we do not believe this is a time to be too adventurous with risk-taking. Consequently, we intend to continue to strive for a well-diversified portfolio with a relatively short maturity in our credit investments and to continue to seek opportunities to be low or negative interest rate risk in order to generate returns in a situation of rising market interest rates.
The net asset value of the fund rose marginally in December. The fund’s credit exposure was the main explanation for this month’s positive outcome, but interest rate risk exposure also made a positive contribution. The fund’s interest rate risk was reduced this month and the duration at the end of the period was -1.6 years. Otherwise, only minor adjustments were made to the portfolio.
Fund facts
Risk Indicator
The risk and reward indicator illustrates the link between risk and potential returns from an investment in the Fund. The indicator is based on how the fund's value has changed over the past five years or the highest permitted risk for the fund. Category 1 does not imply that the fund is risk-free. Over time, the Fund’s risk indicator may change both upwards and downwards. This is because the indicator is based on historical data for the Fund’s model portfolio, which is not a guarantee of future risk/reward.
Fact
Catella Credit Opportunity is designed to meet a challenging interest-rate environment and to be better able to adapt to different market scenarios.
The fund is an absolute return special fund and has a focus on fixed-income securities. The fund has a broad investment mandate, which allows investments across the entire fixed-income capital spectrum. At least 50 percent of the fund's assets are invested in Nordic holdings.
The fund invests predominantly in owned bonds, convertible debentures, preference shares and cash management. The fund's independence of any benchmark allows for business-based and flexible decisions. The fund uses derivatives both opportunistically and to protect its capital against the two primary risks, interest-rate risk and credit risk.
The fund is a further development of the successful and award-winning Catella Nordic Corporate Bond Flex fund. The new fund has an even broader management mandate and takes more risk in its investments, but also has greater potential to make use of derivatives for protection.
