While the stock markets climbed to new record highs in the first half of the year, the first central banks also initiated a turnaround in monetary policy by cutting interest rates. Will the environment remain positive?

In the Funds exclusive series, the fund managers of selected funds look back on developments in the first half of 2024 and give their assessment of what the markets could expect in 2024. (Note: Prognoses are not a reliable indicator of future performance).

While the stock markets climbed to new record highs in the first half of the year, the first central banks also initiated a turnaround in monetary policy by cutting interest rates. Will the environment remain positive?

In the Funds exclusive series, the fund managers of selected funds look back on developments in the first half of 2024 and give their assessment of what the markets could expect in 2024. (Note: Prognoses are not a reliable indicator of future performance).

"The upcoming US elections in autumn and the course of the economy and inflation in the US could trigger potential market turbulences."

Péter Varga, fund manager ERSTE BOND EM CORPORATE

Fund & Performance

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).

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.

Commentary by fund manager Péter Varga

How did the fund perform in the first half of 2024?

The year started with a strong correction on the US government bond markets. The strong US economic growth and the renewed rise in US inflation have led to a postponement and significant reduction in the expected US key-lending rate cuts until probably September 2024 and later.

In view of the valuation of spreads in a historical context, the fund generally invested in shorter maturities. This was suboptimal in an environment where investors only pay attention to absolute yields and often disregard fundamental developments. Local investors were the drivers here, as on the one hand local yields in many emerging market countries were below US yields and many local investors therefore favoured USD investments. On the other hand, emerging markets yields were also attractive for many non-local investors compared to the yields achievable on US corporate bonds. On a 3Y and longer time horizon, the fund remains at the top of its peer group, despite the relative weakness over the past twelve months. 

 

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

The fund was underweighted in the A to BBB rating classes and in Asia as a whole, where spreads were often trading at unprecedented lows, which led to high gains in this segment. We were also more cautiously positioned in issuers with an uncertain future, which nevertheless made strong gains in such a “blind” environment where attention is only paid to yields and not to spreads. With a view to the economy, we were overweighted in solid BB high-yield bonds, but this did not compensate for the aforementioned underweighting, as we were often invested in shorter maturities (lower spread sensitivity), which led to slightly lower gains.

 

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

The upcoming US elections in autumn and the course of the economy and inflation in the US could trigger potential market turbulences. Both candidates are still planning a budget policy that would support the economy, which in turn could lead to increased issuing activity for US government bonds (financing). This, then, could potentially result in rising US yields. Planned international policy measures, particularly with regard to economic restrictions (trade barriers, war hotspots), could also lead to market fluctuations. However, the fund management team does not expect a recession in the USA for the next 12-18 months. (Note: Prognoses are not a reliable indicator of future performance.)

 

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

Our defensive positioning in the first half of the year was not in line with the market environment, but the currently very low spreads support our hypothesis – that there is hardly any room for any further narrowing of spreads – all the more strongly. We will continue to monitor the market closely and reduce our defensive positioning in the wake of corrections, if any.

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.