Nordic Factoring Fund månadsrapport – september  2023

Nordic Factoring Fund monthly report – September 2023

Nordic Factoring fund AB (publ) reports a NAV rate for September of 104.13. That's an increase of 0.55 %.

During Q3, the fund has focused on structuring the portfolio to obtain optimal risk-adjusted returns with a focus on low risk. The portfolio's underlying return has increased while maintaining a good level of risk, and in Q3 2023 has a return level that corresponds to an annual return of 6.3 %.

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 has 0 % credit losses in 2023, which demonstrates how stably the fund generates high risk-adjusted returns despite challenging market conditions. In addition to the good credit quality, there is credit insurance that covers the entire portfolio against losses. The good quality in the portfolio and factoring as an asset type have 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.

The market and the economy
Continued increased interest rates and sluggish core inflation continue to be the focus in the macro area. Both the ECB and the Riksbank raised the interest rate as expected during September, but the ECB signaled that the peak may have been reached. The Riksbank continues to indicate a great possibility for another increase, very decisive will be how core inflation develops and whether the krona can strengthen against the EUR. The Riksbank started buying the krona by selling dollars and EUR, which has had an effect but does not necessarily mean that the krona will strengthen or that the exchange rate will hold during Q4. What the market can ascertain is that a period of high interest rates will mark the market for an extended period of time. Something that will open up possibilities for factoring.

Core inflation continues to decline slowly in Sweden. The economy has entered a recession and GDP has declined in the second quarter and is expected to continue to decline in Q4 2023 and 2024. Weak global demand is hitting the export industry and despite the recession, unemployment has not decreased significantly or is at a high level. This, combined with challenges with the krona's value, justifies an increase in the policy rate in November. Sweden needs to receive several signals so that the interest rate is not to be raised further, and if the euro area does not have the expected effect and the ECB needs to raise again, the reduction of interest rates in Sweden will be delayed and hit companies and households even harder.

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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