Nordea AM expands covered bonds range

Nordea AM expands covered bonds range

Nordea Asset Management has expanded its European covered bond range. 

The firm launched the Nordea 1 – European Covered Bond Opportunities fund to add to its existing range the Nordea 1 – European Covered Bond fund and the Nordea 1 – Low Duration European Covered Bond fund.

The firm said the fund was designed for investors searching for compelling risk-adjusted returns in the fixed income space. 

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It stated the often under-appreciated asset class offered an interesting alternative to investors in search of ‘safe’ yet higher yielding assets. The assets have not had any defaults in 200 years, it added.

Covered bonds are debt securities issued by a financial institution that are backed by a separate group of assets. This means they are covered in the event the financial institution becomes insolvent.

Nordea said it no longer considered attractive many of the assets once considered a reliable source of return – such as government bonds - because yields were languishing at low levels and there were increasing signs of inflation pick-up.

Henrik Stille, manager of the fund, said: "Covered bonds have a much lower volatility than credit bonds and government bonds. 

"They are very attractive if you want to reduce the volatility in a portfolio without losing expected return."

He believes the success of the Nordea 1 – Low Duration European Covered Bond Fund, which attracted more than €1bn (£880,000) in assets under management in less than a year, showed the merits of this asset class were now being recognised by investors. 

The new fund keeps the same low interest rate risk as its predecessor, but expands the credit exposure using limited leverage.

Kusal Ariyawansa, a chartered financial planner at Manchester-based Appleton Gerrard, said: "To not have any defaults in 200 years is reassuring, but then so was Lehmans.

"Unfortunately, this is not a fund on our panel and my focus is on short dated bonds at present."