Nordic corporate bonds often have floating rate coupons to protect against inflation. The recent price slump is an entry opportunity.
The turnaround in interest rates has taken its toll on bond prices. The short-term charts of bond funds look correspondingly battered. The Evli Nordic Corporate Bond fund is no exception.
Apart from a brief but severe price slump in the Corona crash of spring 2020, the fund actually knew only one direction: upwards. But since January 2022, it has been heading south in big steps. Perhaps wrongly so. This is because many Nordic bonds are so-called floaters with variable interest rates and are thus protected against inflation, at least to a certain extent. In the Evli Fund portfolio, this is currently the case for 41 percent of the securities.
"At some point we will reach the bottom of the market," says Evli strategist Tomas Hildebrandt. "I hesitate to predict when, but I am sure it is close."
One reason for international investors' reluctance to buy Nordic bonds could be that half of the issuers are not rated - at least not by one of the leading international agencies like Moody's or S&P. Here, people in the far north rely on local credit analysis, for example by their house banks. At Evli, a team of five analysts led by fund manager Jani Kurppa closely examines the unrated companies and pays particular attention to the ratio of net debt to operating income (Ebitda). Here, the average value of the portfolio is 2.2, which would correspond to a rating between "BBB" and "BB". Defaults are thus unlikely. Nevertheless, the interest rate of 3.2 percent is above the European average.
The low attention paid to Nordic bonds may also have to do with the fact that a large part of the bonds come from companies that are largely unknown south of Denmark. With Vattenfall, Huhtamäki, Dometic Group and Volvo Car, just four of the top ten positions come from issuers that are also sometimes mentioned in non-Scandinavian media. On the other hand, this is very rarely the case for companies such as llevio, TietoEvry, Tornator or Kemira, all of which are among the top five positions.
In addition to creditworthiness, the experienced team of analysts also meticulously examines sustainability criteria and the carbon footprint, because the fund is also supposed to set standards here. Both an accumulating and a distributing tranche are offered.