Evli Green Corporate Bond

The aim is to achieve a return that, in the long term, exceeds the benchmark return. The expected return and risk of Evli Green Corporate Bond are higher than those of a fund that invests solely in government bonds.

The credit risk arising from individual issuers is reduced by diversifying the investments among dozens of different issuers. The average repayment term (duration) of the fund's fixed income investments may be ± 3 years compared to the interest rate risk of the benchmark index.

The fund’s investments carry a credit risk

Credit risk originates from a bond issuer’s ability to repay the bond’s coupons and capital on the maturity date. In the fund’s investments, the default risk arising from an individual issuer is reduced by diversifying the investments among various issuers. The risk premium (credit margin) required by investors varies during the bonds’ exercise period according to the market conditions and factors related to individual issuers. As the credit risk grows, the values of the bonds in the portfolio decrease and vice versa. Poorer credit-rated High Yield bonds, in particular, carry a significant credit risk.

The fund’s value is affected by interest rate risk

A decrease in interest rates raises the value of the fund, while an increase reduces the value of the fund. Interest rate risk may be measured with the average remaining exercise period (duration). Interest rate risk indicates how sensitive the value of the fund is to changes in interest rates. Long-term fixed income funds are much more sensitive to interest rate movements than money market funds. The value of the fund may fluctuate heavily if there are substantial changes in interest rates. 

The new year started strongly, continuing the strong tightening phase in short corporate bonds. Early January typically has dull primary market activity, resulting in increased secondary market demand – and this year was no exception. While the first half of the month was strong, the latter part offered a few clearly soft sessions driven by slower than expected vaccination rates and production hiccups in global covid-19 vaccination production.

The fund total return in January was -0.07%, beating the benchmark total return of -0.13%. By sector, the main drivers for outperformance were selection in Automotive, overweight in Transportation and underweight in Utilities. The green bond primary market was dull, and we only added DLR 2031 into the portfolio.

Markets are still strongly driven by central bank stimulus, negative rates and strongly recovering economies. The portfolio companies that have so far reported their 2020 results have broadly by far exceeded expectations and many companies have reported strongest ever Q4 results. We expect spread compression to continue thanks to strong technical support and improving fundamentals. In addition, we see the green theme to get even stronger in 2021 and, hence, the market is set to offer numerous new opportunities to support the growth of the more sustainable corporate bond market and greener economies.