skagen credit a global corporate bond fund · founded in 1953 as brazil’s national oil company....
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SKAGEN Credit EUR
A global corporate bond fund
Status report January 2015
2
SKAGEN Credit EUR A– Key numbers
Key numbers as of 31 January SKAGEN Credit
EUR A
Index
(Euribor 3m)
Return last month -0,5 % 0,0 %
Return year to date -0,5 % 0,0 %
Return since inception (30.05.14) -2,9 % 0,1 %
Current yield* 2,8 % 0,1 %
Average maturity (WAM) 1,1 0,25
Average life time (WAL) 3,5 N/A
Average credit spread (OAS)** 380 bps N/A
*Current yield changes from day to day and is no guarantee of future return ** Average option adjusted spread on the investments, cash excluded
3
Portfolio managers’ comments
• Continued Russian unrest and the low oil price, a left wing election victory in Greece
and a decision of quantitative easing in the Eurozone. These are but a few of the
events that took place in the financial markets in January. Pricing on corporate bonds
has not changed substantially last month, but there have been negative
developments. The credit market seems more stable at the end of January than it did
at the end of December.
• In general the yield on investment grade corporate bonds is currently very low,
particularly in core Europe. In order to find attractive risk/reward and to maintain good
risk diversification we have more investments in emerging markets, southern Europe
and the UK. In January we have reduced our exposure to Russia because of the
continued unrest from the Ukraine conflict and because the negative trend for the
Russian economy has continued.
• Companies like the Italian car maker Fiat, the Portuguese energy provider EDP and
the Indian mobile phone company Bharti Airtel have contributed positively during the
month. On the negative side we find offshore services provider Seadrill, the Brazilian
oil producer Petrobras and the Canadian train and plane maker Bombardier.
• All in all the fund posted a decline for the month because of the market unrest. The
average credit spread increased from 375 basis points to 380 basis points during the
month.
4
The SKAGEN Credit investment universe
SKAGEN Credit picks bonds both from the investment grade and the high yield spectrum
with a high risk adjusted return potential. Minimum 50% investment grade.
5
Country diversification
Developed markets: 57 %
Emerging markets: 36 %
Cash: 7 %
India; 6%
Russia; 5%
Brazil; 8%
Turkey; 7%
Czech Republic; 4%
Greece; 2%
Nigeria; 2%
Hong Kong; 3% Canada;
8%
Sweden; 6% Portugal; 4%
United States; 6%
Netherlands; 2%
France; 4%
Italy; 4%
Denmark; 3%
Norway; 3%
United Kingdom;
10%
Finland; 2%
Switzerland; 3% Cash;
7%
6
Sector and rating distribution
Investment grade: 57 %
High Yield: 43%
Average rating: BBB-
Cash; 7%
Bank og finans; 21%
Defensive konsumvarer;
5%
Energi; 16% Defensive
konsumvarer; 4%
Inntektsavhengige
forbruksvarer; 6%
Kapitalvarer, service og transport;
17%
Nyttetjenester; 8%
Råvarer; 14%
Telekom; 4%
AA (Cash); 7%
BBB; 53%
BB; 35%
B; 7%
7
Interest rate duration and time to maturity
Average time to maturity: 3,5 years
Interest rate exposure and denominated currency of bonds (before currency hedge)
Credit exposure - time to maturity profile on bonds
Currency Bond denominated Interest rate duration
USD 49% 0,9 years
EUR 29% 1,6 years
GBP 18% 1,2 years
NOK 4% 0,1 years
Sum Fund 100% 1,2 years
7%
15%
60%
13%
5%
0%
10%
20%
30%
40%
50%
60%
70%
Cash 1-3 year 3-5 years 5-7 years 7+ years
8
Top 10 investments
Company Country of risk Credit rating* Percent of fund
Energias de Portugal Portugal BB+ 4,3 %
Bank of Baroda India BBB- 4,3 %
Fiat Italy BB- 4,2 %
Bombardier Canada BB- 4,2 %
Braskem Brazil BBB- 4,1 %
EP Energy Czech Republic BBB- 4,0 %
Akbank Turkey BBB- 3,9 %
Lafarge France BB+ 3,9 %
Gazprom Russia BBB- 3,7 %
Petrobras Brazil BBB- 3,7 %
Sum top 10 40 %
* Average bond rating
SKAGEN Credit –
Picking the best
bonds from the
global orchard
Fact sheets for some portfolio holdings
10
World leader in building materials. Cement (no.1), concrete (no. 4)
and construction aggregates (no.2). Plans to merge with Holcim in
2015.
Lafarge
Triggers:
• Planned merger with Holcim will lead to investment grade rating
• Sell of non-core assets to reduce debt-level
Risks:
• Merger fails
• Cyclical business segment
Domicile: France
Sector: Construction materials
Rating: BB+
Maturity: 2018
Position: 3,9 %
Spread at purchase: 185 bps
Current Spread: 156 bps
11
Brazilian integrated oil company. Founded in 1953 as Brazil’s national oil
company. 90% of production in Brazil. Brazilian government owns of 48%
of shares and 64% of votes.
Petrobras
Domicile: Brazil
Sector: Energy
Rating: BBB-
Maturity: 2018
Position: 3,7%
Spread at purchase: 214 bps
Current Spread: 550 bps
Evaluation:
• Solid reserves
• Governmental support
• Highly unpopular
Risks:
• Heavy capex program followed by increased debt
• Spread follows Brazilian government spread
• Ongoing corruption case
The company struggled in 2014 with the low oil price, high investment
program, low cash flow and an ongoing corruption case. Due to these
factors, the company is more unpopular than ever. The management is
now addressing these issues and we see the opportunity of a recovery
going forward. We find the current pricing very attractive in relation to the
company risk.
12
Braskem is on of the largest petrochemical companies in the
Americas. 38 industrial plants spread across Brazil, United States,
Argentina and Germany.
Braskem
Domicile: Brazil
Sector: Chemistry
Rating: BBB-
Maturity: 2021
Position: 4,1%
Spread at purchase: 290 bps
Current Spread: 413 bps
Evaluation:
• Diverse customer base and strong distribution capabilities
• Dominant position in the petrochemical market
• Declining debt levels
Risks:
• Rating downgrade of Brazil
• Volatile raw material prices – affect earnings
13
Turkish commercial bank active within various client categories. 3rd
largest in Turkey with around 1000 branches in Turkey as well as
overseas business in Germany and Dubai. Strong owner in the
Sabanci family, holding a 49% post in the company.
• Diversified Turkish loan portfolio with Small & Micro loans growing
Akbank
Domicile: Turkey
Sector: Financials
Rating: BBB-
Maturity: 2017/2018
Position: 3,9%
Spread at purchase: 220/260 bps
Current Spread: 234/253
Evaluation:
• Attractive levels, punished for being Turkish
• Good asset quality and funding situation
Risks:
• Political risk in Turkey
14
EDP - Energias de Portugal is a well diversified energy producer and
supplier in Portugal, Spain, Brazil and USA. Committed to increasing
renewable energy mix towards 2017 and beyond.
Energiaas de Portugal
Domicile: Portugal
Sector: Utility Utility
Rating: BB+
Maturity: 2017/2019
Position: 4,3%
Spread at purchase: 160/193 bps
Current Spread: 100/222 bps
Evaluation:
• Low volatility, stable business
• Better market climate in Portugal/Spain
• Good leverage situation, possible IG rating?
Risks:
• Rating influenced by Portugal – external risk
• Regulatory price limitation on energy
Hydro; 34%
Wind/solar; 35%
Nuclear; 17%
Coal; 13%
Product mix
Portugal; 45%
Spain; 25%
Brasil; 17%
USA; 9%
Result by country (EBITDA)
15
Ola Sjöstrand
Ola Sjöstrand has worked in SKAGEN since 2006 as portfolio manager of
SKAGEN’s fixed income funds. He launched and has been responsible for
running the SKAGEN Krona fund amongst others. Before joining SKAGEN
Ola worked as portfolio manager at the Swedish Soya Group. A
combination of strong analytical skills and investment experience applying
SKAGEN’s investment philosophy puts Ola in a strong position to find good
investment cases for the fund. Ola holds a BSc in Business Administration
and Economics.
Tomas Nordbø Middelthon
Tomas Nordbø Middelthon has worked in SKAGEN since 2010, both as a
risk manager and more recently as portfolio manager of SKAGEN’s fixed
income funds. Before that Tomas worked within financial services in Statoil
implementing financial risk management tools worldwide. Tomas holds an
MBA within Finance and is a Certified Financial Analyst. He has strong
analytical skills and a background from financial risk management. The
combination of risk management and technical expertise is valuable in the
screening and analysis of corporate bonds and portfolio construction.
The portfolio managers
The portfolio managers draw on their expertise in the fixed income markets, as well as SKAGEN’s equity fund managers’
long experience of successful stock-picking. They have long-standing and complementary experience ranging from fixed
income management to company analysis, risk management and trading.
For more information please visit:
Latest Market report
Information about SKAGEN Credit EUR on our website
Unless otherwise stated, all performance data in this report relates to class A units and is net of fees. Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager’s skill, the fund’s risk profile and subscription and management fees. The return may become negative as a result of negative price developments.
SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers’ viewpoint at a given time, and this viewpoint may be changed without notice. The report should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this report or are part of the fund's portfolio.
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