Concept

Concept

HP Fonds only offers portfolio management of Danish government and Danish mortgage bonds, which are widely regarded as among the most secure fixed income securities in the world. The Kingdom of Denmark is rated AAA by Standard & Poors. The large Danish mortgage institutes and/or their capital centers are rated by major rating agencies. The Danish mortgage bond market was established in 1797. There has been legislation regulating mortgage institutes since 1850. Danish mortgage bonds have never experienced a default.

The idea of the mortgage industry of Denmark is to provide borrowers with flexible and transparent loans on conditions close to the funding conditions of capital market players. The issuance of covered mortgage bonds transfers market risk from the issuing mortgage institute to bond investors. Strict property loan-to-value rules, a national property registry and specific mortgage legislation have historically shielded investors from default risk. An example of the latter is the so-called 'balance principle”, which requires mortgage issuers to fund new loans by the issuance of new mortgage bonds of identical cash flow and maturity characteristics.

Due to the extremely low credit risk of our portfolios, and the robust liquidity of the Danish bond market, we regard the investment risk in our portfolios as purely interest rate related.

Our focus is exclusively upon Danish government and Danish mortgage bonds issued in Danish Kroner (DKK). Within this segment there are approximately 2000 bond series quoted on Copenhagen Stock Exchange NASDAQ OMX. The market has a face value outstanding of almost DKK 3.4 trillion (approx. €450 billion), of which the ultra-liquid group represents 100 series and approx. one-third of the total amount outstanding.

Our specialty is the ability to value all bond series, even those bonds outside the ultra-liquid segment. Therefore we invest in “rare” less liquid bonds, providing they give an excess return relative to corresponding liquid bonds with the same duration.

By including the less liquid bond segment in our portfolios, we have been able over the years to achieve excess returns without increasing risk (i.e. higher Sharpe Ratio). This has resulted in stable and very satisfactory performance.

 

Out Goals

It is our goal to:
  • be among the best portfolio managers within Danish government and Danish mortgage bonds.
  • create a gross return that is at least 1% higher than the benchmark with similar risk.
  • deliver a tailor made product with accurate and transparent reporting to our clients.
  • have an ongoing dialogue with our clients on risk and strategy.

 

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