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

The downward trend for bond yields was reinforced by further weak incoming macro data and increasingly high expectations of lower policy rates from central banks. The yield curves, the spreads between interest rates with shorter and longer maturities, declined this month, which is normally taken to mean that central bank monetary policy is too tight. It is difficult to see this as entirely rational, given that policy rates are negative, but the adage that central banks decide when monetary policy is tightened and the market signals when it needs to be more expansionary, has historically been close to the truth, and may well be right this time around. The ever-lower market interest rates provided support corporate bonds, which performed well during the month. The divergence in pricing − of the likelihood of recession − between different asset markets still seems far to 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, but if central banks manage to surprise the markets with more expansionary monetary policy than expected in September, there is good potential for rising stock markets, continued good performance for higher-risk corporate bonds and steeper yield curves due to rising interest rates on bonds with longer maturities.

The favourable environment for interest-bearing assets in August resulted in slightly positive performance for the portfolio. The fund's holdings in corporate bonds were the main contributor to the return. In the wake of the large fall in interest rates, the fund adopted a position for rising rates at the start of the month. As interest rates continued to fall, it turned out this was wrong and the position was closed with a loss, which meant the fund lost out on returns from interest rate risk management. The net asset value of the fund rose 0.11 % this month. The risk level in the fund is balanced and the cash position remains high. The fund's interest rate risk was increased back upward in the second half of the month, and the duration was 2.6 years at the end of the period.