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.
In a world of declining growth and inflation, it may seem the Riksbank is wrong in its ambition to raise the repo rate, but from an economic perspective it matters little whether rates are -0.25% or 0%, so a hike cannot be ruled out, although our best guess is that it will be postponed.
Thomas Elofsson, 2019-09-30
Fund manager comment
Market interest rates rose in the first half of September despite continued weak macro data. In the second half of the month, the negative surprises continued and interest rates tipped downward. Somewhat surprisingly, the Swedish Riksbank continued to signal its intention to raise policy rates either in December or early next year. The Swedish labour market has weakened sharply since the summer months and inflation is expected by most analysts to be closer to 1 % then to the central bank’s 2 % target. In a world of declining growth and inflation, it may seem the Riksbank is wrong in its ambition to raise the repo rate, but from an economic perspective it matters little whether rates are -0.25% or 0%, so a hike cannot be ruled out, although our best guess is that it will be postponed.
Ever more voices are clamouring that monetary policy in Europe has played out its role and that it is time for fiscal policy to take over. Given that politicians have so far been reluctant to increase budget deficits, the threshold to looser fiscal policy is relatively high. Eventually, though, it is highly likely that budget deficits will rise and that the supply of government bonds will increase. We are in a situation where significantly stronger or weaker growth will lead to higher market interest rates, while unchanged or falling market rates can only occur if growth and inflation remain sluggish.
The divergence in pricing of the likelihood of recession between different asset markets still seems far too great. The fixed income market suggests that growth and inflation will continue to weaken, while credit and equity markets deem this risk to be low. We anticipate that growth will continue to weaken this year. This calls for looser monetary policy or fiscal policy in order to avoid a repeat of the developments we saw at the end of last year for the equity and credit markets.
In the wake of rising market interest rates, the fund’s net asset value fell 0.34 % in September. Corporate bonds performed better and contributed positively to the outcome. The fund’s holdings in municipal bonds with low credit risk reduced the return. Holdings of put options in the stock market and our short position in the Swedish krona also made a negative contribution to the return this month. The environment of negative government bond yields in Europe continues to lead to inflows to credits. The fund’s interest rate risk was reduced during the month and the duration amounted to 0.3 years at the end of the period. 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.
