Persistently high inflation and the restrictive course of the central banks continued to dominate the first half of the year. In this series, Funds exclusive, our fund managers look back on the performance of selected funds and explain their view with regard to the second half of the year.

"The developments from here on out will be strongly affected by the next inflation data and the central banks' reaction to it."

Helwig-Dieter Ziering, fund manager ERSTE BOND COMBIRENT

Fund & Performance

ERSTE BOND COMBIRENT primarily invests in government bonds denominated in euros that are issued or guaranteed by issuers from Europe and that are mainly rated in the investment grade segment (or a comparable segment) by recognized rating agencies in terms of their creditworthiness. Ecological and social factors as well as corporate management factors are integrated into the investment process.

The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation. Past performance is not a reliable indicator of the future performance of a fund.

Performance since start of the fund
Note: Past performance is not a reliable indicator for future performance.

Commentary by fund manager Helwig-Dieter Ziering

  • Maturity management was continuously adjusted to the monetary policy and economic environment
  • Further development influenced by next inflation data and the reaction of the central banks to it

 

How did the fund perform in the first half of 2023??

In an effort to fight inflation, central banks around the globe continued to raise their key-lending rates in 2023. The European Central Bank (ECB) most recently raised its rates at the beginning of May for the seventh time in a row to 4%.

The maturity management of the fund was continuously adjusted to the monetary policy and economic environment.

In the year to date, we have implemented an active strategy in the country weighting. At times, Italian, Dutch, Finnish, and Irish government bonds were underweighted, while Austrian, German, and Belgian government bonds in particular were overweighted.

In order to achieve a surplus yield, we have purchased Austrian and, to a lesser extent, German mortgage bonds in the past few months to the extent of about 15% of assets under management.  We wanted to take advantage of the historically high interest rate differential to government bonds of the euro core zone and the euro semi core zone. In this market environment, we achieved a slightly positive performance in the first half of the year.

What are your priorities in the fund, based on your expectations?

The development from here on out will be strongly influenced by the next inflation data and the reaction of the central banks to it. While the ECB is signalling that it has already completed a large part of its interest rate hikes, it has also stated that further rate hikes will follow. The market expects the cycle of interest rate hikes to come to a conclusion by the end of 2023 at the latest.

The recession risks associated with further interest rate hikes should keep further sharp increases in yields at the longer end in check. Together with the clearly positive yields on Eurozone government bonds, this represents a good starting point for the second half of the year.

Building on this, we will focus on managing the remaining time to maturity as well as the yield curve. The share of mortgage bonds, which has been built up since the beginning of the year and now stands at around 15%, constitutes a strategic focus for the second half of the year and is to be maintained or ideally, if possible, further expanded in order for the fund to benefit from the currently attractive interest rate differentials.

ERSTE BOND COMBIRENT

Important legal note:

Prognoses are not a reliable indicator for future performance.

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art  21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to Art  21 AIFMG, and the Key Information Document can be viewed in their latest versions at the website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.