With interest rates stabilising at higher levels and credit spreads remaining relatively tight, fixed income returns are increasingly driven by security selection and active positioning rather than broad market direction.
Against a backdrop of ongoing macroeconomic uncertainty and geopolitical risks, dispersion across issuers, sectors and regions has become a key driver of performance. In this more fragmented landscape, successful fixed income investing increasingly requires identifying relative value opportunities, actively managing duration and adapting positioning as market conditions evolve.
A market where bottom-up analysis and activity matter
One segment where active security selection is particularly important is the less index-driven Nordic corporate bond market. The market represents roughly 14% of the EUR 3.6 trillion* European corporate bond market and, while often less in focus than larger European markets, it offers a combination of attractive yield levels, solid corporate fundamentals and structural inefficiencies that can create opportunities for active investors. It has also seen strong growth in outstanding volumes in recent years, alongside increasing participation from non-Nordic issuers. In particular, the high yield segment has grown faster than in broader US and European markets, reflecting deepening investor demand and the continued internationaliation of the Nordic credit universe.
Structurally, the Nordic corporate bond market differs from larger credit markets due to smaller issuance sizes, a more fragmented market structure and limited benchmark representation. In addition, a meaningful share of bonds remain unrated, not due to weaker credit quality, but because ratings are often not necessary in a predominantly local issuance environment. Consequently, issuer-level analysis, local market access and bottom-up credit selection are increasingly important drivers of return generation.
Together, these features contribute to the so called “Nordic premia”: attractive yield levels, resilient corporate fundamentals and favourable deal structures relative to broader European credit markets.
Active credit investing across Nordic and European markets
In this environment, active management plays a central role in capturing opportunities across fragmented credit markets. Mandatum Fixed Income Total Return is designed to operate primarily in the Nordic and European investment grade markets and has successfully navigated multiple market regimes since its strategy’s inception in 2008 by combining active duration management, disciplined credit selection and a flexible, benchmark-agnostic approach.
Rather than tracking benchmarks, the portfolio is managed dynamically through active duration management, complemented by hedging when necessary. This approach allows the team to adjust interest rate sensitivity depending on market conditions, helping to protect the portfolio in rising rate environments while capturing upside during easing cycles.
Beyond interest rate positioning, a long-standing strength of the team lies in its deep credit expertise and deep issuer access, which has formed the backbone of Mandatum’s portfolio for several decades. This long experience is further enhanced by a collaborative investment process, where multiple sub-asset classes are analysed simultaneously. This broader perspective enables the team to identify relative value opportunities across different segments of the market.
Blogpost by Nicholas Fellman, Head of Fixed Income at Mandatum
*Source: Stamdata
Disclaimer
Mandatum SICAV-UCITS - Mandatum Fixed Income Total Return Fund is a Luxembourg-domiciled UCITS fund managed by Mandatum Fund Management S.A. The fund’s portfolio manager is Mandatum Asset Management Ltd. Before making any investment decision, please read the Prospectus and Key Information Document (KID) of the fund. This marketing communication does not constitute investment advice. Past performance does not predict future returns.