The Nordic high yield bond market, valued at around EUR 80 billion, accounts for about one-fifth of the entire European high yield bond market. For investors, the market offers opportunities to diversify their portfolios with an attractive risk-reward potential.
In March, the 2025 LSEG Lipper Fund Awards once again recognised the Mandatum Nordic High Yield fund as Europe’s best fund investing in high yield bonds in two different categories. Over a three-year assessment period, Mandatum’s fund was awarded as the best in Europe three times in a row, and over a five-year period, the fund was the best for the second time in a row. Additionally, in April, the fund was recognised as the best fund over both assessment periods also in the wider European and Nordic comparison groups.
But what are high yield bonds all about and why does the Nordic high yield market offer interesting opportunities?
High yield corporate bonds refer to sub-investment grade or unrated bonds with higher yield-to-maturity and thus a higher return potential. Generally, these companies have somewhat higher leverage and risk profile and hence investors demand a higher return on their investment to bear this higher counterparty risk. Thus, the possibility of a default is the key risk of high yield investing, and therefore thorough credit selection plays a crucial role in the investment process.
The Nordic High Yield fund primarily invests in the bonds of Nordic companies which have no official credit rating or which are rated as high yield, that is below BBB-. The client assets managed by the fund exceeded EUR 760 million at the end of 2024.
The Nordic high yield market is a broad and growing market that offers attractive risk-reward potential for portfolio diversification. There are currently over 500 issuers operating in the Nordic high yield market, and the number is growing rapidly. Since 2009, the market has grown by an average of 12 per cent per year.
The Nordic market is worth approximately EUR 80 billion in total and accounts for about one-fifth of the entire European high yield market. However, not all companies in the Nordic market are included in the broader European index.
Greater diversification from distinct market
The Nordic high yield market offers investors the opportunity for additional diversification that cannot be achieved by investing solely in the European high yield index, as only a small proportion – the largest companies – belong to this broader market.
“The Nordic high yield market allows investors to include various companies with different growth profiles and from different sectors in their portfolio. The market also includes smaller and mid-sized companies, not just large-cap companies, which make up a large part of the broader European high yield index,” says Mandatum’s Head of Leveraged Finance, Alexander Gallotti.
The sector diversification in the Nordic countries is also different compared to the broader European market, as for example the real estate, finance, industrials and shipping sectors play a more significant role in the Nordic countries.
The Nordic high yield market forms its own separate market area that is not covered by other investment instruments. For example, there are no market-covering ETFs, indices or derivative instruments.
“There are no direct indices for the Nordic market, so investors need to have their own networks in place as well as a team to do the credit work. An alternative way to get access to the market is to invest through a skilled asset manager,” Gallotti explains.
Investors attracted by the risk-reward potential
Recently, the weakening of bond terms on a global scale has been a hot topic. In the Nordic market, however, credit documentation has remained good compared to other market areas. In addition, bond terms are generally stricter in the Nordic countries, which improves the position of creditors in situations where the debtor’s situation deteriorates.
“From a risk perspective, Nordic high yield bonds have better documentation, which gives investors partial downside protection if things don’t go as planned,” says Gallotti.
The interest rate duration is also lower in the Nordic market. In the Nordic countries, half of the corporate bonds are floating rate, whereas in the European high yield market, the majority of corporate bonds are fixed rate. When the majority of the instruments are variable rate, interest rate sensitivity is lower. This, in turn, reduces the volatility of bond prices on the secondary market caused by changes in market interest rates.
“Most of the bonds on the Nordic high yield market are floating rate which also limits the secondary market price volatility resulting from interest rate changes,” Gallotti sums up.
The Nordic high yield market comprises of many long-term investors, such as institutional investors. Such actors do not typically seek quick gains, which could significantly disrupt the secondary markets. This also contributes to the fact that there is less price volatility on the Nordic market compared to the broader European index.
In addition to lower volatility, the market’s attractiveness is enhanced by its total return potential, which is typically higher in Nordic high yield. Mandatum calls this the Nordic premium.
In the Nordic high yield market, companies are typically smaller than those in the broader European high yield index, which means these companies also need pay a higher interest rate. In addition, the Nordic market has many companies that have no credit rating at all affecting the supply demand dynamics in favour of the bond investors.
Thorough credit analysis as a mainstay of credit selection
For example, the high yield investment process at Mandatum always includes a comprehensive company and credit analysis of the potential bond issuer. The purpose of the analysis is to understand both the industry and the company and to identify potential associated risks. This is done, for example, by meeting with the company’s management and analysing the financials, including for example cash flow and capital structure assessments. Additionally, various future scenarios are mapped out, and the company’s ability to cope with its proposed debt load in different economic situations is stress tested.
“Mandatum places a strong emphasis on investee company selection, and we do our homework well. To that end, Mandatum has an experienced and well-resourced credit team. Some risks can be priced in, but not all risks or their combinations can necessarily be compensated with a higher interest rate, for example some cases might be more of an equity case and would hence be turned down. It is important to identify as many of these risks as possible when making investment decisions and to assess the magnitude and likelihood of potential impacts,” stresses Gallotti.
Long experience and wide networks accumulated through it, for example with arranging banks, also provide the opportunity to get involved in processes at an early stage. In this case, it is possible to have an influence on the financing structure, bond terms and pricing of the issue and have more time for a thorough analysis. Generally speaking, there is more time to conduct analyses on the Nordic high yield market compared to Europe.
“Mandatum has a long history of credit investment. The company has accumulated expertise over decades through the Group’s own balance sheet investments. This expertise has been refined year after year and is increasingly utilised in the management of client assets as well,” says Gallotti.
Where companies on the Nordic market vary in size and industry, they also differ significantly in credit quality. In this case, a comprehensive analysis is important to identify the winning companies in the wide range of financing opportunities.
“There are also many companies on the market that we are not ready to invest in ourselves. All companies go through the same investment analysis process at Mandatum, based on which we handpick companies for our portfolio,” concludes Gallotti.
Marketing material
The LSEG Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is an objective, quantitative, risk-adjusted performance measure calculated over 36, 60 and 120 months. Lipper Leaders fund ratings do not constitute and are not intended to constitute investment advice or an offer to sell or the solicitation of an offer to buy any security of any entity in any jurisdiction. For more information, see www.lipperfundawards.com.
This marketing communication is related to Mandatum SICAV-UCITS, a Luxembourg UCITS-SICAV and its Sub-Fund “Mandatum Nordic High Yield Total Return Fund” (the “Fund”). This document is prepared by Mandatum Asset Management Ltd, portfolio manager of the Fund. The Fund is managed by Mandatum Fund Management S.A. (53 Boulevard Royal, Luxembourg L-2449, Luxembourg)
Past performance does not predict future returns. Future returns may also be negative. Before making any investment decision, please read the Prospectus and Key Information Document (KID) of the UCITS. The Fund’s risks are described in its Key Investor Information Document available at: mandatumam.com