Investors looking for fixed income exposure to Nordic companies may soon have the option of considering the Carnegie Corporate Bond fund, as the Swedish fund provider is set to invest to raise awareness of the near 25 year old fund outside the region.
Available in SEK as well as hedged NOK and euro, and as quarterly dividend share classes, the fund is managed by Babak Houshmand (pictured left) and Niklas Edman (right) as a relatively conservative portfolio, with no minimum investment levels required and offering daily pricing.
As of early August, the fund had a 42% geographic exposure to Sweden, 21% to Norway, 10.6% to Finland and 4% to Denmark, with total assets of some SEK13.6bn (€1.44bn).
That heavy weighting toward Nordic corporate bonds is the result of the mandate, although it is not the case that a company has to be a Nordic one for the fund to consider its bonds, explains Houshmand, who joined Carnegie Fonder in 2014.
“It is mandated to hold 90% of bonds in Nordic or Nordic related counterparts. It doesn’t need to be a Nordic company, but needs exposure to the Nordics,” he says.
By looking across the region, the fund benefits from diversification across sectors that otherwise tend to dominate single markets – such as offshore oil, fishing and seafood in Norway. The diversification also helps with managing currency risk, again, considering the example of risk to Norwegian companies from the oil price fall in the past year.
However, currency risk aside, the Nordic region offers significant fixed income opportunities, Houshmand says.
One reason is that while most Nordic companies are not a pure play on Nordic risk, they are subject to Nordic standards of transparency and governance.
Some names in the portfolio are more local, such as Swedish telecoms operator Com Hem, which offers 100% Swedish exposure and which is held through a Swedish bond rather than as previously a Eurobond. But most of the companies held are global or European in terms of the underlying exposure to different economies and different risks.
This also helps explain why Houshmand and Edman tend to look at larger companies, to access diversification of risk as well as lower default rates compared to the SME sector. As a fairly large Nordic investor it is important to look at the size of the bond too, given the risks associated with being the biggest investor in any particular issuance.
Generally, there is reluctance to buy into any issuance below €60-70m, Houshmand explains.
The fund is also able to buy on both the primary and secondary markets. Earlier this year there were some good opportunities in the latter.
“We are a buy and hold strategy. Our view is that we hold all bonds to maturity. We seldom do, but that’s the objective. If it is a five year bond we want to hold for five years. Most likely we will sell after three years, but that’s the outlook.”
In terms of the spread of maturities in the portfolio, there is an effect from what is considered a relatively young bond market in the region. For example, 2013-14 saw a rise in issuance of five year bonds that will mature in another three years or so. This necessitates consideration of interest rate risk, as rates are likely to move higher over the period.
And while companies may have increased their use of bonds to fund themselves there is some uncertainty around the impact on levels of issuance should interest rates go up, Houshmand says.
For investors outside the region the attraction of the asset class may be about adding some Nordic exposure, Houshmand says.
But, to the point of it being a relatively ‘young’ market, it means there are new companies coming in that create interesting opportunities around spreads, as well as from those companies paying a bit more in order to come into the market.
Investors benefit from transparency, good governance and low levels of corruption, and from diversification against European and US high yield, as well as emerging market debt, Houshmand concludes.