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 RESERVE CORPORATE is a bond fund with a short fixed interest rate. It invests globally in corporate bonds. The emissions are primarily denominated in euros. Any foreign currency risk is usually hedged. The fund mainly invests in bonds with an investment grade rating. The target range of interest rate duration ranges from 0 to 1 years. Changes in the creditworthiness or risk premiums of the bonds can lead to larger price fluctuations.

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 Matthias Hauser

How did the fund perform in 2024?

The performance of ERSTE RESERVE CORPORATE in 2024 was satisfactory at 4.48% for a short-term fund. The main drivers were, on the one hand, current income earned and, on the other hand, the narrowing of credit spreads in 2024. (Please note: an investment in securities involves risks as well as opportunities.)

The year 2024 started with a spread rally, with the narrowing of spreads boosting the fund’s performance in the first few months. The market for investment-grade and high-yield euro corporate bonds was largely unimpressed by macroeconomic events. Despite uncertainties regarding the inflation path and economic growth, corporate bond spreads narrowed.

We regarded bank bonds as particularly attractive and overweighted them deliberately. This was due, on the one hand, to the relative attractiveness of the bonds and, on the other, to the solid fundamental basis. In some market segments, cracks appeared, especially in commercial real estate, where fear was spreading. However, after the start of the interest rate cut cycle, the situation eased somewhat, and attractive opportunities emerged.

 

What was the focus of the fund in 2024?

The focus of the fund in 2024 can be roughly divided into two halves. In the first half of the year, interest rates were still stable at high levels, and we positioned the fund slightly in the direction of high-quality assets, given that attractive interest rates were again achievable here. At this point, we already anticipated the possible decline in interest rates and thus actively stepped up the interest rate sensitivity of the fund.

In the second half of the year, which was characterised more clearly by falling interest rates and narrow credit spreads, the search intensified for alternatives to ensure that an attractive interest rate could continue to be guaranteed. Attention turned to investments in Eastern Europe. In particular, we made slight increases in banks from this region that stood out due to good profitability, a stable economic environment, and attractive yields.

Generally speaking, the banking sector continues to account for our largest position in the fund. Due to the slightly increased credit spreads compared to the market as a whole and the strong fundamental data of banks, we regard this sector as attractive. The allocation towards variable-rate securities was passively reduced, as we no longer regarded the cushioning effect against rising interest rates as necessary. We increased the high-yield portion of the fund slightly to achieve a surplus return relative to an investment in bonds with exclusively good to very good credit ratings. However, in this case, we generally invested in the better-rated high-yield segment. We have maintained a near-zero allocation in issuers from the real estate sector, although opportunities arose here for more stable issuers and were also taken.

 

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

We expect a stable economic environment for 2025, supported by further interest rate cuts from central banks. The interest rate path in Europe seems to point more clearly in the direction of further low interest rates than in the USA. With regard to credit spreads, we are at a low level for European bonds with good to very good credit ratings. The market is already pricing in a positive scenario here. In some sectors, demand could possibly decline, but on the whole, company earnings have held up well so far. (Note: Prognoses are not a reliable indicator of future performance.)

 

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

Since we expect interest rates to continue falling in 2025, we have kept the fund’s interest rate sensitivity at the upper end of its range. In addition, the share of floating-rate securities will continue to decrease in favour of fixed-rate securities. Both measures should have a positive effect in an environment of falling interest rates.

Any widening of credit spreads will be reflected in the fund in the short term, but the buy-and-hold approach means that this will not have a material impact. On the contrary: current redemptions could be reinvested at higher credit spreads, thus creating a more attractive investment opportunity. In order to continue to generate an excess return in the segment close to the money market, we may increase the high-yield component. Similarly, the share of BBB-rated securities in the fund will likely rise again.

The fund has benefited greatly from the interest rate environment over the last two years. Thanks to its flexibility, it can quickly adapt to a new market environment and is also well equipped for the challenges and opportunities in 2025. (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. 

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. 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 conjunction with the InvFG 2011. 

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.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

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.

We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to Art 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens. 

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.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

Erste Asset Management GmbH is affiliated with the referring Sparkassen banks and Erste Bank.

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Subject to misprints and errors.