5 reasons to invest in Nordic High Yield in 2020

2019 has been a year of relatively stable credit spreads in the Nordic high yield market. As a result we see that the returns in many of the Nordic high yield funds are quite close to the stated yields of the funds at the start of 2019.

Stable credit spreads is generally a good thing for long term performance, but in a year in which high yield spreads both in Europe and the US have tightened considerably, we have seen that Nordic high yield funds in general have underperformed their European and US counterparts. So, given these developments what are the main reasons to invest in this marketplace in 2020.

Unfortunately we do not know what 2020 will bring. What with trade skirmishes, the US election, potential Brexit and UK trade negotiations with the EU, there are plenty of uncertainty going into the new year. Thus, it is difficult to be certain when it comes to the absolute return in equity and credit markets in 2020.

Our main scenario is that economic growth will stabilize and continued low interest rates will maintain the demand for credit risk and spread products leading to decent returns in credit. But admittedly, there are risks to this scenario. We are quite convinced, however, that the developments in 2019 have made credit spreads in the Nordic high yield market attractive relative to spreads in the US and European high yield markets.

Over the past few years the volatility in the Nordic high yield market has been lower than in the European and US high yield markets. Admittedly this could partly be due to the lack of liquid index instruments for the overall market and credit default swaps for most names, leading to potential lags in market pricing. But there are also some structural aspects of the market leading to stability. Among these are the lack of ETFs and the fact that institutional investors make up the bulk of the overall investor base.