Dear customer
Earlier this week, you received a market update from me, and I promised to get back to you if the situation developed further.
This letter is being written from the home office, which many people have been forced to do in recent days, and we can safely say that the situation has developed further.
Since my last letter, Norway, Europe and the US have been severely affected and paralysed by the coronavirus. Some countries have been early adopters, but Norway has unfortunately been very slow to react. That's why some people will probably feel that the measures being implemented are a little brutal.
In the market, we have received a double shock from corona and the oil price war. There have been major movements globally and the correction we have seen is the second fastest since 1922. Everything is connected to everything, which is why both equity and fixed income markets have felt this on the body.
Late to the game
In my opinion, the authorities in Norway have been very late to the game, which has contributed to reinforcing the correction in the market. Today, more or less the whole country is closed, and in big cities there are queues to buy toilet paper.
The challenge now is that the market is being influenced by fear and lack of confidence, which in turn creates irrational movements in equity and fixed income securities.
It doesn't get any easier when banks send their brokers and traders home. DNB Markets (Norway's largest brokerage house) has sent all its employees to work from home as a result of a confirmed infection in one employee. Danske Bank, Arctic and Swedbank have done the same. Of course, this has consequences for how trades are made.
Kraft Høyrente has also been affected, but has also fulfilled its role as a calm alternative to equity funds. The fund itself is a low-risk fund, but like many other fixed income funds, it has experienced a decline due to irrational pricing.
Solid and safe companies
What's important to remember is that the portfolio consists of solid and safe companies. We don't have any exposed companies in our portfolio, such as tourism. In addition, we have only 1 per cent oil exposure. The portfolio matures in approximately 2.65 years and has an effective interest rate of 7.5 per cent. "What's important to remember is that our portfolio consists of loans. These are legal agreements and the loans must be repaid with interest.
My clear advice is to take it easy during this period, and there are two main reasons for doing so.
- When the upturn comes, it will probably be as steep as the downturn was.
- You receive ongoing earnings on the effective interest rate.
For the moment, ignore the daily NAV development, as it can still fluctuate both up and down. What is relevant is that your money is safe in the portfolio and that you are likely to be repaid with principal, interest and capital gains.
I have been involved in several crises in the past. 11 September, the financial crisis in 2008, the European crisis in 2011/12 and the oil crisis. Every crisis is different. The one we have now is brutal and different from those we've been through before, but we'll come through it stronger and end up with greater values than we had when we went into it.
I will get back to you if there are any further developments in the portfolio.
Thank you for this time,
Regards
Øivind Thorstensen
Portfolio manager in Kraft Høyrente
