Dear customer,
Last week we were informed by the government that the state of emergency in which the nation finds itself will continue until after Easter. Before then, a new assessment will be made as to whether the measures should be continued even longer. The period we are now in can be challenging for each and every one of us, and we all have our own challenges, but it is all the more important that we all stand together in this period of endeavour. Amidst the daily flood of news about the coronavirus, it's important to remember that every week new measures are being taken to bring the development of the virus under control, and not least measures are being taken to prevent the economy from collapsing.
Kraft Høyrente's investments are in companies that are healthy and we have no problem children in the portfolio. Last week was a good week for the fund. We are approaching a NAV price of 85, and although there is still a long way to go, we can perhaps venture to say that we may have passed the bottom. The portfolio has a very attractive effective interest rate, and in addition there is potential for solid capital gains. We must still be prepared for the market to fluctuate a lot in the time to come, but my clear advice is still to sit tight through this period. Last week, more and more stimulus packages were approved and therefore the uncertainty in the market has calmed down a bit. On Friday, the US alone approved a stimulus package totalling NOK 23,000 billion. In addition, the US Federal Reserve implemented other major measures to provide the market and the economy with more liquidity. The same applies to the European Central Bank and not least Norges Bank.
The main purpose of the stimulus packages is to maintain a functional financial system and help create confidence in the system. The market has calmed down considerably, with the stock market recovering some of its losses, although fluctuations are still considerable. The fixed income market has also received a large dose of confidence and has risen sharply from its previous low. We have also noticed a change of mood in the market over the course of the week, with most funds now chasing good investments.
The stimulus packages are also intended to help vulnerable companies that have lost earnings but are still struggling with fixed costs. There are many of them, but they will get the help they need. In the US, Europe and Norway, support schemes have been implemented to help companies. In Norway, the Government Bond Fund has been adopted and the fund is now ready to start acting. These measures will have a major positive effect on the market, and not least on Kraft Høyrente. The Government Bond Fund has a limit of NOK 50 billion and will receive more if necessary. This money will be spent on investment grade and high-yield securities. There are no restrictions in the fund, except that they cannot invest in loans that are practically in default.
The end of last week was strong, but the Government Bond Fund has not begun to trade, and therefore the market may not need the fund. However, the fund's mandate is to bring the effective interest rate down so that companies can finance themselves at a reasonable market rate. An interest rate that corresponds to credit quality.
In conclusion, it is important to emphasise that we are still not out of the woods. The recession will be steep, and perhaps the worst ever, but the journey back can be just as steep upwards. When the economy is switched back on and has grown back to its starting point of USD 80 trillion, we should remember that the world has pumped in USD 10-15 trillion. The world economy has thus been given an extra 12-15 per cent growth potential. Going forward, we will see more fluctuations and new bad news, but also more good news. Together, we'll stay the course!
As usual, I will get back to you if there are any new developments in the portfolio or the market.
Regards
Øivind Thorstensen, Portfolio Manager at Kraft Høyrente
