The coronavirus and the fall in oil prices have contributed to a significant fall in both the equity and credit markets. This has affected Kraft Høyrente, which has also experienced a fall in recent weeks. Compared to the market in general, however, we have fared well, and I am confident that we will come through the turmoil that now characterises the market.
The coronavirus will pass sooner or later, and neither OPEC nor Russia can live with oil prices in the low 30s over the long term. In addition, governments around the world have already begun to stimulate the economy in the form of interest rate cuts and public investment.
Solid portfolio
However, Kraft Høyrente's portfolio is the main reason why I feel confident that we will come out of this stronger. Yes, we are also affected by the market turmoil, but there is nothing wrong with our portfolio. Underlying it is very well-functioning.
The correction we are now experiencing is driven by the repricing of risk in the global capital market and has no relation to individual names in our portfolio. All companies in the portfolio have reported figures for the fourth quarter and, in general, the results have been in line with expectations, or better.
We have taken every possible precaution to position ourselves defensively in this phase. Where necessary, we have rotated the portfolio, and at the same time we have accumulated cash. In addition, the portfolio has no interest rate or currency risk and a maturity of only 2.88 years. Just as importantly, the effective interest rate increases when the market is turbulent. This means that the portfolio has already begun to make up for some of the weakening that has taken place. No major changes have been made to the portfolio, but we are patiently observing the market and awaiting more information about the coronavirus and its impact on the markets. The fund will utilise this opportunity in the best possible way for the benefit of our unitholders, but we will do so when the time is right.
Learn from the past
All history from previous corrections has taught us that the markets have always recovered. That's why I recommend that you remain calm about the situation. For the year as a whole, I still expect a positive development.
I would like to draw your attention to the fact that a monthly report for February will be sent out later this week. This report will focus on the developments we experienced in February. The development we are experiencing now in March will be discussed in the monthly report for March, but along the way I will keep you updated if new things happen that significantly affect the market.
Regards
Øivind Thorstensen, Portfolio Manager at Kraft Høyrente
