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.

"Fundamentally speaking, most companies are well positioned despite possible recession concerns."

Roman Swaton, fund manager ERSTE BOND CORPORATE PLUS

Fund & Performance

ERSTE BOND CORPORATE PLUS mainly invests in subordinated bonds with an investment grade rating. The focus is on hybrid bonds denominated in euros from the non-financial sector. Subordinated emissions from financial institutions are added. 

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. Due to the very short term, this presentation of the performance is not very meaningful.

Commentary by fund manager Roman Swaton

  • Most companies are fundamentally well positioned
  • No signs of recession yet in company data reported so far

 

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

Despite further interest rate hikes by the ECB and the Fed, some fixed-income asset classes recorded falling yields in the first half (please see the graph below).

Subordinated corporate bonds with the best credit ratings (i.e. investment grade) are labelled “Hybrids IG” in the chart. They are referred to as hybrids due to the fact that they combine debt and equity characteristics. As of 9 June 2023, the corresponding index recorded a yield of 5.59% with a manageable interest rate risk as illustrated by a duration (= average capital commitment period) of 3.5 years. Compared to, for example, an EMU government bond index (“Euro Govt” in the graph), where the yield was 3.09%, this is a remarkable yield premium. This yield premium seems even higher if one takes into account the significantly higher interest rate risk of EMU government bonds with a duration of 7.3 years.

Fundamentally speaking, most companies are well positioned despite possible recession concerns. Leverage ratios, sales growth, profitability, and liquidity remain good by historical standards. In the company data reported up to and including the first quarter of 2023, no signs of a recession have yet come up.

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

ERSTE BOND CORPORATE PLUS is composed of non-financial corporate bonds, as well as bank and insurance bonds for reasons of diversification. In the course of the fund's conversion to an Article 8 fund in accordance with the EU Disclosure Regulation, we increased the extent of bank and insurance bonds strategically mixed in to 35% of the fund's assets under management in 2022. As part of our sustainable investment approach, we were no longer able to invest in companies such as BHP, ENBW, Enel, Engie, Total, and later also VW.

Issuers from peripheral countries of the Eurozone (Italy and Spain) now account for 20% of investments. The largest country weighting is Germany (Bertelsmann, Deutsche Bahn, Merck, Münchner, and Hannover Rück) at 16%. The average ESGenius® score of 71 is higher than that of the investment universe of 64. The interest rate and spread duration is currently slightly shorter than that of the universe due to the flat or slightly inverted yield curve.

 

Note: The companies listed here have been selected as examples and do not constitute investment recommendations. Any portfolio positions of funds disclosed in this document are based on market developments at the time of going to press. In the context of active management, the portfolio positions mentioned may change at any time.

ERSTE BOND CORPORATE PLUS

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.