The super election year of 2024 lies behind us. In addition to another interest rate hike by the major central banks in the USA and Europe, it brought a potentially landmark election victory for Donald Trump in the US presidential election. What is in store for 2025?

In the Funds check series, the fund managers of selected funds look back on the developments of the past year and give their assessment of what to expect from the stock exchanges in 2025. (Please note: forecasts are no reliable indicator of future performance.)

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.

Note: Please note that an investment in securities entails risks in addition to the opportunities described. Past performance is not a reliable indicator of future performance.

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 Bernd Stampfl

How did the fund perform in 2024?

At the beginning of 2024, banks specialising in commercial real estate lending came under some pressure. That situation notwithstanding, the overall picture for bank bonds was quite positive.

In March 2024, the risk sentiment began to turn a little. Investors started to take a closer look at issuers, especially those with increased refinancing needs. The increased refinancing costs put the companies under particular pressure to find adequate solutions.

Towards the end of spring, the market calmed down a little. The geopolitical tensions receded somewhat into the background, with the pressure on the interest rate markets decreasing. The motto of “higher interest rates over a longer period of time” seemed to have become more attractive again.

In May, spreads on the euro high-yield bond market narrowed due to solid corporate earnings and strong technical data. However, when the French went to the polls in June, the spreads on European high-yield bonds widened. In the event, this development was then offset by falling interest rates and high demand for the asset class.

During the summer months, spreads in the European high-yield bond market initially remained fairly stable, although risk appetite weakened due to disappointing earnings reports. In August, the high-yield bond market was characterised by high volatility as weak US employment data raised concerns of a hard landing.

In September, financial markets posted solid gains despite ongoing economic uncertainties. The month began with a sell-off in risky assets due to scepticism over the US Federal Reserve’s 50bps interest rate cut. However, markets recovered after the Fed’s cut. Lower government bond yields and narrowing credit spreads provided high-yield bonds with positive returns.

The autumn was generally a weaker period for bonds and equities. This was partly because economic data was surprisingly positive, dampening expectations for future interest rate cuts. In addition, the US elections and the announcement of additional borrowing in the British budget brought fiscal policy risks back into focus. Disappointing earnings reports from some large technology companies also caused volatility.

 

What was the focus of the fund in 2024?

In line with our cautious approach, we continued to favour bonds issued by high-quality, non-cyclical companies with high liquidity and fundamentally sound balance sheets. (Please note: Be aware that the medium to low creditworthiness of the companies in the fund increases the risk.) We also favoured defensive sectors such as telecommunications and utilities. The fund’s exceptionally good performance was highlighted by the REITs in our investments (= Real Estate Investment Trusts – listed public limited companies operating in the real estate industry).

 

What does the fund management team expect for 2025 in terms of global economy and trends?

Due to the already very low yields for BB corporate bonds, we expect rising volatility of spreads in 2025. Sectors that have suffered particularly in 2024, such as the automotive sector, should offer very good entry scenarios in the course of 2025. In particular, an intercontinental tariff war could accelerate this situation. (Note: Prognoses are not a reliable indicator of future performance.)

 

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

Despite the very low spreads on corporate bonds, we continue to see attractive entry levels for BB corporate bonds. In particular, names that are already under pressure or are likely to come under pressure in the course of next year may see favourable entry levels at any time. Generally speaking, we continue to view banks as attractive, while we are somewhat more cautious about the retail sector. (Please note: investing in securities involves risks as well as opportunities.)

Disclaimer of the management company Erste Asset Management GmbH and its sales agent Erste Bank Group

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. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English. 

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The currently valid versions of the prospectus, the Information for Investors pursuant to Art 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

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Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com

N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated.

Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance. 

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to Art 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

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It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

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Subject to misprints and errors.