September was a weak month for the fund in a market characterized by increased volatility. Government bond yields have risen significantly in both Europe and the U.S. throughout the year, and particularly since the summer. The rise in yields is driven by geopolitical unrest, high energy prices, and expectations of tighter monetary policy than the market had previously anticipated. At the same time, investors are demanding higher credit spreads. This has led to negative price movements, with the sharpest decline occurring in the real estate sector, which represents the fund’s largest exposure.
In the real estate sector, Heimstaden faced selling pressure following media reports that Alecta intends to divest its stake in Heimstaden Bostad. The market is already aware of this, so the reaction appears to be exaggerated. Heimstaden controls the majority of the votes, and the company has made it clear that any potential deal will only go through if it creates value for Heimstaden and supports its creditworthiness.
In recent years, the fund has deliberately reduced its exposure to the Nordic market because we believe we receive a better return for the risk in Europe. This provides better liquidity, but it also means that the fund is more closely tied to fluctuations in the European market, as we have seen this month.
The fund generates high current interest income and holds a portfolio of high-quality companies with solid capital structures that can withstand most market turbulence. We always seek the best possible risk-adjusted return and aim to use market volatility to our advantage. We bought bonds whose prices had fallen without any change in the underlying fundamentals of the companies.
The fund has experienced similar fluctuations in the past and has historically rebounded quickly. We don’t know how long it will take this time, but regardless, current levels offer an attractive current yield for the long-term investor.
As of the end of the month, the fund has a current yield of 9.58%* and an yield to maturity of 10.82%*.
*Before costs related to management. Will be subject to change from day to day, and is therefore no guarantee of the return in the period for which it is calculated.
Sincerely
Øivind Thorstensen & Simen Aarsland Øgreid
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