Nordic Factoring Fund månadsrapport – februari 2024

Nordic Factoring Fund monthly report – February 2024

Nordic Factoring fund AB (publ) reports a NAV rate for February of 100.96. That's an increase of 0.49 %.

The portfolio's underlying return is still good with a good level of risk maintained. The fund sees a continued good level of return going forward and that the risks are at a good level. The fund is positive that interest rates will decrease during 2024 when return levels for NFF are expected to be at the same good level as before, which creates a very competitive fund when other low-risk asset classes will lose returns. The fund has brought in a major institutional investor who has made two investments so far, which is very positive and a good rating for the fund and its existing investors. The fund sees great interest from institutions and sees very good potential to bring more major investors into the fund.

Factoring financing enables businesses to manage liquidity needs, reduce risk and focus on growth. The potential flexibility and adaptability of factoring solutions make it an attractive financing option for various types of businesses, especially those looking to manage their finances in a more flexible and efficient way. The fund continues to see great demand and can finance the capital against good counterparties. The fund has carefully analyzed sectors and individual counterparties to mitigate risks and the portfolio outlook remains very good. Despite increased risk in the market, the fund sees that the counterparties in the portfolio manage their payments and demonstrate strong repayment capacity.

The fund sees very good prospects in the market and the good quality in the portfolio and factoring as an asset class has since 2019 proven to be a good investment. In addition to that, the credit insurance provides double protection for investors and a good rating for the fund's assets and processes that insurance companies are willing to insure. By investing in NFF, investors gain access to a large well-diversified portfolio with over 250 counterparties and an asset class that is uncorrelated with other asset classes such as interest rates, stocks and bonds.

The market and the economy
Inflation rose in January, which was expected, but may not have resulted in positive news for the market if the hope was that interest rates would be cut quickly. What affects inflation a lot is the heavy housing costs. However, underlying inflation continues to fall and is a good sign that inflation is falling and interest rate cuts will come during the year, the only question is when. The picture is that the Swedish economy has brightened and shows relatively good resilience, which continues to indicate a soft landing in the economy, which we also see signs of globally. A major risk is the geopolitical situation, which appears to be a continuing cloud of worry. The market, companies and individuals benefit from the broad decline in inflation and the fact that interest rate cuts are getting closer.

Interest rates globally are expected to be significantly reduced in 2024 and banks see 4–6 reductions during the year. The first reductions are now expected to possibly come a little later than the analysts first thought during the May-June period and then ongoing reductions will take place at upcoming meetings for the FED, ECB and the Riksbank. The currency can be an influencing factor for inflation in Sweden and can affect the decline if the krona weakens. However, the overall picture is that reductions will clearly come in 2024 and influencing factors such as geopolitics, currencies, government investments, can only affect the rate of reductions during the year. Lower interest rates will make it easier for sectors and companies that are dependent on the financing market, here factoring will be a very interesting financing option for that and it will help the companies grow.

The portfolio reserves are very low. Almost 100 % of the fund's exposure is in category 1 and the collateral is over 30,000 invoices pledged in favor of the fund. The invoices are rolled over in 30 to 90 days with credit insurance both with and without recourse. Furthermore, there is property insurance for an eventuality should false invoices appear.

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