ERSTE BOND EM CORPORATE invests in corporate bonds from emerging countries. The fund invests worldwide and enables investors to participate in the growth opportunities of these emerging markets. Foreign currency risks against the euro are mostly hedged (Note: Please note that an investment in securities entails risks in addition to the opportunities described).

Note: Past performance is not a reliable indicator of future performance.

Performance since start of the fund. 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.

How did the fund perform in 2023?

The year started on a positive sentiment on the bond markets. All investment banks and research houses had put a strong focus on bonds as an asset class in their analyses for 2023. Several billion USD of new money also flowed into EM bonds in the first two months of the year. The aforementioned positive sentiment on yields was coupled with euphoria about the revival of the Chinese economy following the Covid-19 lockdowns, meaning that the fundamental picture was also positive.

However, this was followed by rather mixed figures from China, which did not live up to expectations. Figures from the manufacturing sectors were weaker than expected, with only the service sector surprising on the upside, much like in other developed markets. By comparison, the US economy outperformed expectations, and the announced increase in key interest rates, coupled with rigid inflation caused long US yields to rise significantly in the autumn months.

On the technical side, our market is strongly supported (the volume of new issues is significantly below the volume of coupon payments, redemptions and corporate bond buybacks), but has also become more illiquid, which makes active management more difficult.

In the first five months, the fund was invested with slightly less interest rate sensitivity than the benchmark, which cost some performance, as did relatively small positions in individual names from China that were considered “survivors” of the property crisis. In the last few months, we then increased our interest rate sensitivity after US yields tested the 5% mark in the 10Y range.

What was the focus of the fund in 2023?

The fund increased the portion of EUR-denominated bonds (mainly bank bonds from the CEE region), as these would very often yield very similar or higher returns than comparable bonds in USD, but without hedging costs for the USD currency, which totalled around 2% during that period. Otherwise, we tended to favour bonds with a short remaining time to maturity, as the US yield curve was inverted (low reinvestment risk) and since we would generally keep our credit risk low in such an environment. Our positioning in China was suboptimal, but we avoided a number of names in various sectors and countries that suffered major price losses.

What does the fund management team expect for 2024 in terms of global economy and trends?

Corporate bonds from growth markets continue to come with lower leverage than corporate bonds from developed markets. Companies from growth markets are increasingly buying back their bonds early, even in the high-yield segment, thereby demonstrating their financial strength. Yields on corporate bonds from growth markets are at pre-2008 levels. Our market would deliver a marginally positive performance in 2024 even if spreads or US yields were to rise by a further 2% points. At these levels, we therefore find the asset class very interesting for top-ups again after a long time.

Note: Prognoses are not a reliable indicator for future performance.

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

We will invest the maturing short-term bonds in longer maturities at these levels in order to lock in the currently attractive yields for a longer period of time. We remain very vigilant on the other side in order to avoid any problems in this slightly weaker economic environment.

Note: Please note that an investment in securities entails risks in addition to the opportunities described.

ERSTE BOND EM CORPORATE