Stockholm (HedgeNordic) – Nordea Asset Management’s Copenhagen-based office is home to a team of portfolio managers and analysts dedicated to capturing relative-value opportunities in the fixed-income space. After celebrating the five-year anniversary of their European-focused fund earlier this year, the team now commemorates the same milestone for their Nordic-focused relative-value fixed-income fund, Nordic Rates Opportunity Fund II.

The original Nordic Rates Opportunity Fund was first launched in 2017 as a closed fund exclusively for pension fund clients, with its open-ended successor, Nordic Rates Opportunity Fund II, launching in December 2019 to serve a broader investor base. Now marking its five-year milestone, the open-ended fund has delivered two consecutive years of strong performance following a quieter start. “After a quieter or more defensive beginning, a fine-tuning and expansion of the investment strategy was implemented. Since then, the fund has been on a strong journey and the improvements have taken effect and can be seen in the performance over the last couple of years,” says Frank Klahsen, Product Manager at Nordea Asset Management.

Launched in December 2019, Nordea Nordic Rates Opportunity Fund II gained 7.5 percent in its first full year in 2020 before recording a 3.0 percent decline in 2021 and a 3.5 percent drop in the challenging market conditions of 2022. However, the fund rebounded impressively with a 10.3 percent gain in 2023 and an even stronger performance in 2024, advancing 15.6 percent year-to-date through November. “Despite a more challenging beginning, the fund has delivered in line with the expectations since inception, with particularly strong risk-return metrics over the last couple of years,” adds Klahsen.

“Despite a more challenging beginning, the fund has delivered in line with the expectations since inception, with particularly strong risk-return metrics over the last couple of years.”

Frank Klahsen, Product Manager at Nordea Asset Management.

Managed by the same experienced team, Nordic Rates Opportunity Fund II (NRO) and European Rates Opportunity Fund (ERO) share a similar investment process focused on identifying the best risk-adjusted relative-value opportunities. Their idea-generation processes complement each other, though the funds differ in focus. The NRO fund focuses on Nordic markets, leveraging their high credit quality to apply higher levels of leverage. Meanwhile, the ERO fund benefits from access to a broader European investment universe. In May 2024, Nordea expanded the lineup with a third fund targeting relative-value opportunities on a global scale.

Commenting on the current market environment, Klahsen points out that “we are finally out of a long period with Central Bank QE’s and are back to a more normal pricing structure and dynamics within the fixed income market.” This environment offers a lot of opportunities for relative-value-orientated active managers, according to Klahsen. “By applying our well-defined and proven investment process, supported by our proprietary risk model, we can concentrate exposures to the most attractive risk factors and thereby deliver superior risk-adjusted returns.”

“We are finally out of a long period with Central Bank QE’s and are back to a more normal pricing structure and dynamics within the fixed income market.”

Frank Klahsen, Product Manager at Nordea Asset Management.

Nordea’s relative-value fixed-income team currently manages close to €400 million across its three hedge funds, with the European-focused fund representing the largest share. After managing around €100 million since inception, the Nordic Rates Opportunity Fund II saw its assets drop to €30 million in late 2023 before gradually recovering on the back of strong performance. “We are a dedicated team of portfolio managers who have been working together for more than 15 years in the team. The deep understanding and long experience in the European and Scandinavian covered bond markets make us confident that the fund’s strong trajectory will continue, and we will stay among the top performers among our peers also going forward,” Klahsen concludes.