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Nordic Factoring Fund AB (publ) reports a NAV rate for August of 103.96, an increase of 0.45 % compared to the previous month.
Investing in the Finserve Nordic Factoring Fund offers investors access to a well-diversified, low-volatility portfolio, consisting of over 250 counterparties with high credit ratings. The fund's portfolio has a low correlation with other asset classes such as interest rates, shares, traditional credits, currencies and commodities. The fund's volatility stands at 0.3 % on a 12-month rolling basis.
During the past month, the fund has managed to maintain a well-balanced risk level in the portfolio and the outlook for the future remains stable. The current strategy is proving to be successful with returns in line with the target return at an attractively low level of risk. The Riksbank's decision to lower the interest rate in August, as well as the forecast for further reductions in 2024, strengthens the fund's competitiveness in the long term. This makes the fund even more attractive, especially in comparison to other low-risk investments, which are likely to yield lower returns as a result of the upcoming interest rate cuts.
No new investments have been made during the period, but the management team takes a positive view of the current portfolio composition ahead of autumn's market development. The current trend of falling interest rates, combined with signs of recovery in certain market segments, creates favorable conditions for factoring as an attractive financing option. This makes factoring an increasingly beneficial solution for businesses, which can be effectively integrated with more traditional financing methods.
We assess that the fund has continued good prospects for delivering an attractive risk-adjusted return with low volatility. The underlying counterparties in the portfolio have an average credit rating of A, and the entire portfolio is protected by credit insurance to minimize the risk in the event of bankruptcy. The low insurance premium indicates that the portfolio composition is considered satisfactory by the insurance companies and reflects the quality of the underlying processes and counterparties.
Forecasts
Inflation continues to decline and is now approaching the levels that central banks aim for. In several countries, there has also been concern that inflation may be too low before the planned interest rate cuts have the intended effect. Despite a widely expected slowdown, the global real economy has shown greater resilience than previously predicted. In the US, however, clearer signs of a slowdown are beginning to emerge, and there is growing concern that the Federal Reserve has been too slow to cut interest rates. This uncertainty created volatility in financial markets in early August, as fears of an imminent recession emerged. However, many see the possibility of a so-called "soft landing" if the Federal Reserve begins to lower interest rates.
Expectations are that the European Central Bank (ECB) will cut interest rates on September 12 to stimulate the economy. Although inflation is decreasing, some underlying factors, such as services inflation, are still at high levels. At the same time, the euro area is showing signs of weakness, especially in Germany. The ECB wants to avoid dampening growth too much, and markets expect more central banks to cut interest rates, increasing pressure on the ECB to act to support the economy and avoid a recession.
Sweden is significantly more sensitive to interest rate changes than the USA and the rest of Europe. Higher levels of debt and a preponderance of housing loans with variable interest rates have meant that the Swedish economy reacted quickly to the Riksbank's interest rate increases. After several years of stagnation, unemployment is now increasing, while inflation is below target. There is thus a risk that even the Riksbank may be too late in implementing interest rate cuts, which would require more frequent reductions in the future. In order to avoid a deepening economic downturn and to stimulate the Swedish economy, it may be necessary to cut interest rates faster in the future, something that the Riksbank also suggests.
Lower interest rates will help sectors and companies that depend on external financing. The factoring market is in a strong growth phase, especially when banks and lending institutions are becoming increasingly restrictive with credit. Factoring offers many businesses, both large and small, a more flexible financing option that can support their growth.
IFRS 9
The reserves in the portfolio are very low. 100 % of the fund's exposure is in category 1, and the collateral is based on over 30,000 invoices pledged in favor of the fund. The invoices are rolled over in 30 to 90 days with credit insurance with and without recourse.