Fund performance was positive during the quarter and the fund rose 0.83% in SEK. Q1 was marked by rising interest rates as well as narrowing credit spreads and a good risk appetite. The market’s initial pricing for several rapid rate cuts was gradually priced out during the quarter when inflation admittedly declined, although not at the same rate as forecast.
Despite rising interest rates, credits posted strength and were primarily driven by stronger than expected company reports and improvement to key figures in general in the sectors that were most affected by rising interest expenses, such as real estate, as well as by a higher demand for issues, which secured financing and liquidity for many companies.
The fund’s longer spread duration benefitted from the market performance and contributed significantly to both active and absolute returns. Senior Nordic bank bonds and real estate companies such as Humlegården, Castellum and Fabege were major contributors, together with the holding in covered bank bonds.
We are retaining a slightly shorter interest rate duration in total but with an overweight in the shorter durations, while we are retaining a longer spread duration than the benchmark index with an overweight in AAA mortgage futures. Our assessment is that the Riksbank will begin to cut rates in May/June and that the cuts will benefit the risk appetite in the credit market.
The fund participated in several new issues at attractive levels primarily in green bonds from Ellevio, Lantmännen, Husqvarna, Castellum and Traton, as well as senior banks such as LF Bank and DNB and the manufacturing company Assa Abloy.