Alfred Berg’s Nordic high-yield bond fund has seen big inflows in the past year but there are not enough new issuances to buy.
“The shipping companies have accumulated a lot of cash. But they didn’t refinance last year,” portfolio manager Henrik Emil Hoyerholt said in an interview in Oslo.
“We would like to see bonds refinanced but instead we just lost our positions,” he said, referring to Hoegh LNG and Odfjell, which failed to issue new bonds when their older ones reached maturity.
The fund manages about NOK 10.5bn ($1bn) after big inflows in the past 12 months.
“It has been a crazy inflow. It has been incredibly good. There is a huge appetite for Nordic high yield,” he said.
It holds over NOK 1bn of cash, which it intends to use for purchasing bonds.
“We have kept on hoping that there will come enough good cases. But they are not frequent enough so that we can allocate all of our inflows,” Hoyerholt said.
The Nordic high-yield bond market has been increasingly attracting investors due to its returns in recent years, which have been competitive with those of the stock markets.
Hoyerholt’s fund returned 13.2% in 2023, compared to DNB Nordic High Yield, which saw an 11% increase.
In the past five years, the fund had an average annual return of 8.2%.
Although the shipping sector’s share of the Nordic high-yield bond market has fallen, the fund is overweight on shipping bonds.
About 13% of the capital is invested in shipping compared with the market’s 7%.
The fund has several shipping companies among its top holdings: Wallenius Wilhelmsen, Altera Shuttle Tankers, SFL Corp, Torm and Ocean Yield.
Traditionally, the fund has invested in diversified ship finance companies or shipping companies with long contracts and stable cash flows.
However, the fund participated in Danish tanker owner Torm’s bond issue in January.
“It is more exposed to spot price than our other shipping holdings. They have very good earnings now. It was a good price that offered good compensation for the risk. It is a company that suits our portfolio,” Hoyerholt said.
Altera Shuttle Tankers refinanced in February but that issue was too expensive for Hoyerholt.
Several funds with buckets of cash push up the prices of new issues.
“A trend this year has been that if there is a new issue with an indication of a 5.5% spread, it might be sold at 4.75% because all the funds have a lot of cash and the demand is high. If the spread narrows too much we give up the deal,” he said.
Some shipping companies may come back to the bond market if interest rates fall a bit, Hoyerholt said.
“The Nordic bond market is open for that sector. Many Norwegian investors want to see more shipping bond issues,” Hoyerholt said.
“The price on money for shipping companies is attractive now but you can’t borrow if you don’t need the money,” he said.
