Catella Nordic Corporate Bond Flex RC

Catella Corporate Bond Flex is a fund whose objective is to deliver competitive risk-adjusted return. The fund invests in Nordic corporate bonds, both investment grade and high yield, and government bonds. The fund applies negative screening for sustainability criteria and we consequently avoid long positions in companies that produce tobacco, alcohol, commercial games for money, pornography, coal, oil or weapons. Derivatives are used in management to protect fund capital. Over time, the fund's returns will co-vary with the Nordic corporate bond market. 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. Composition of the fund reflects Catella's outlook on the conditions for generating return in relation to risk in respect of credit and interest rate risk.

Fund manager comment

Although macro data remained weak, market sentiment was positive during the month, with stock exchanges and market interest rates rising, and good performance for corporate credits. The main factor behind the positive sentiment was the hope of a deal between the US and China. As expected, the US central bank lowered its policy rates and pumped liquidity into the money market during the month. It emphatically claims this should not be seen as quantitative easing. We believe you should call a spade a spade, and this is monetary policy stimulus, which, if it follows the historical pattern, should lead to rising stock exchanges and rising market interest rates. The Swedish central bank was very clear with its intention to leave negative policy rates behind it, and raise the repo rate to 0 in December. This decision has caused a lot of bitter comments from the market since neither growth nor inflation point to an increase. Our interpretation is that the Riksbank has (finally?) realised the detrimental effects of negative interest rates on the banking system and also, by extension, on the economy. This will have consequences, both for market pricing today and for how monetary policy will be conducted in case more stimulus is needed. We assume that the repo rate will now be raised to 0 in December and will be 0 or higher for the foreseeable future. We believe that Swedish interest rates need to be adjusted to reflect this. This means that fiscal policy is now the foremost weapon for stimulating the Swedish economy in the slowdown we are now seeing. The surplus policy needs to be abandoned, and we will see an increased supply of government bonds in the coming years. We regard this development as both likely and desirable. The dismal journey of the Swedish krona is now over and we are looking forward to a stronger Swedish currency in the coming years. In our estimation, the likelihood that the Riksbank will again lower interest rates below 0 is slight. Our picture is that the probability of continued quantitative easing in the form of bond purchases has thus increased.

The fund rose 0.39 % in October. Both credit and interest risk exposure contributed positively to this month’s outcome. The fund’s interest rate risk was reduced during the month and the duration amounted to -2.3 years at the end of the period. Otherwise, only minor adjustments were made to the portfolio.