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.

"Default probabilities should remain low due to strong fundamentals."

Bernd Stampfl, fund manager ERSTE BOND CORPORATE BB

Fund & Performance

ERSTE BOND CORPORATE BB mainly acquires corporate bonds of international issuers with the rating ""BB"". Bonds with a BBB or B rating may also be purchased. Any foreign currency risks are mostly hedged. The fund's task is to generate current income in euros. 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 Bernd Stampfl

  • Default probabilities should remain low due to strong fundamentals
  • Increasing fluctuations expected due to widening spreads

 

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

The exceptionally strong performance of bonds in the BB segment at the beginning of the year led to a situation where the fund already peaked in the first quarter. Only concerns about interest rate increases and rising default probabilities due to higher refinancing levels caused spreads in the BB segment to widen.

A further trend reversal emerged when the American Silicon Valley Bank and First Republic Bank were floundering in March. The emergency takeover of the Swiss Credit Suisse by UBS caused the spreads of BB versus B bonds to begin to widen again. At no time did the fund hold any assets in these risk positions.

What was the focus of the fund in the first half?

In the first half of the year, the focus was on the reduction of risk positions in view of increased fluctuations caused by inflation pressure and the above-mentioned weakness of bank shares. This led to the shortening of the average remaining time to maturity in the fund and to profit-taking in selected bank shares.

Fundamentally speaking, most companies in this rating segment remain well-positioned, and debt, profitability, and cash ratios remain good on average. Many companies have managed the higher interest rates well so far, and credit rating revisions are more or less balanced between upgrades and downgrades. It is precisely these key ratios that are currently being given special attention.

What do you expect for the second half in terms of global economy and trends?

In the short term, we expect spreads to narrow considerably in the near future thanks to yield-driven demand. However, increasing growth uncertainties and possible recessions could cause spreads to widen faster than expected. A widening of spreads would be absorbed by a simultaneous narrowing of yields on underlying government bonds. Default probabilities should remain low due to strong fundamentals.

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

For the second half of the year, we expect increasing fluctuations due to widening spreads. We want to contain these uncertainties by continuing to focus on high-quality bonds which should perform better in a risk-averse market environment, accompanied by higher liquidity. We intend to use this higher liquidity to swap these bonds for cheaper ones after the risk has been priced in. A similar situation holds for bank shares, which continue to command low valuations by comparison after the sell-off in the first half.

ERSTE BOND CORPORATE BB 

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.