Nordic Factoring Fund månadsrapport – juni 2024

Nordic Factoring Fund monthly report – June 2024

Nordic Factoring Fund AB (publ) reports a NAV price for June of 102.94, an increase of 0.44 % from the previous month.

During the month, the fund has maintained a good level of risk in the portfolio and the outlook ahead looks stable. During the period, the fund has had higher liquidity than usual, which has affected the return somewhat negatively. Expected interest rate cuts will not affect the fund's return or the historically stable risk level. Lower interest rates will also increase the fund's competitiveness, as other low-risk investments are expected to yield lower returns due to future interest rate cuts.

The management continues to carefully analyze sectors and individual counterparties in order to minimize the risks and maintain a high repayment capacity. The fund continues to assess good opportunities for good risk-adjusted returns and low volatility. The fund's underlying counterparties have an average rating of A and the fund has credit insurance as protection against bankruptcy. The low insurance premium indicates that the composition of the portfolio is satisfactory for the insurance company and a good rating on underlying processes and counterparties.

Investing in the Finserve Nordic Factoring Fund gives investors access to a well-diversified portfolio with over 250 counterparties with high credit ratings and an asset class that exhibits low correlation with other asset classes such as interest rates, equities, credit, currencies and commodities.

After the ECB cut interest rates in early June, the rate of inflation in the euro area fell as expected. Despite this, service inflation remained at high levels, which may affect the timing of the ECB's next rate cut.

It is very likely that further rate cuts will occur in 2024, although no cut was implemented in June. Despite unexpectedly high inflation in May, the interest rate path was lowered compared to the monetary policy report in March. This signals a higher probability of a new reduction already at the next meeting in August.

In a press release on 27 June, it appears that if the inflation outlook remains, the policy rate may be lowered two or three times during the second half of the year. Previously, in March and May, the forecast was two reductions. Lower inflation prospects, a weaker economy and a stronger krona are cited as reasons for the adjusted interest rate path. The head of the Riksbank, Erik Thedéen, is clear that the krona does not control the interest rate path, but it may have an effect if the Swedish krona continues to weaken. The forecasts for 2025 and 2026 remain largely unchanged, with expectations of around 2.75 percent at the end of 2025 and just over 2.50 percent at the end of 2026.

Lower rates will ease sectors and companies dependent on financing. Factoring is on a strong growth trajectory as banks and lending institutions become increasingly restrictive with credits. Factoring enables many large and small companies to grow with a more flexible loan option.

Provisions in the portfolio are very low. Almost 100% of the fund's exposure is in category 1, and the security is based on over 30,000 invoices pledged in favor of the fund. The invoices roll over 30 to 90 days with credit insurance with and without recourse.

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