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 RESPONSIBLE BOND MÜNDEL invests in bonds from Austrian issuers that are denominated in euros (federal bonds, "Pfandbriefe" and well-founded bank bonds). The investment in bonds of companies and countries that are among the pioneers when it comes to respecting ecological, social and governance aspects, is at the forefront of the investment decision. A holistic ESG approach also takes ethical aspects into account (Note: Please note that investments in sustainable investment funds involve risks as well as opportunities).

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 Helwig-Dieter Ziering

What sort of conclusion do you draw from 2024 on the capital markets?

Due to the very sluggish decline in inflation (especially core inflation) in the first few months of 2024, the European Central Bank left the deposit rate unchanged at 4% in the first half of the year until the end of May 2024.

As a result, the yields of Austrian government bonds and indeed the yields in the entire Eurozone came under renewed pressure In this market environment after a sharp decline at the end of 2023 and rose again from January to the end of May 2024, which weighed on the year-to date performance.

It was only at the beginning of June, when the decline in inflation became more pronounced, that the ECB loosened key-lending rates for the first time in about five years, by 0.25%. This was followed by two further steps in September and October 2024, each of 0.25%, to most recently 3.25%.

 

What were your priorities in this environment?

We continually adjusted our duration management to the monetary and economic environment.

We retained Austrian mortgage bonds and (provincial and federal) government-guaranteed bonds to benefit from the hitherto attractive interest rate differential versus Austrian government bonds. However, we reduced this allocation from about 50% to about 35% over the year after the interest rate differential versus Austrian government bonds had narrowed as expected and had thereby made a positive contribution to overall performance.

The fund complies with the strict sustainability criteria of Erste Asset Management.

In this market environment, ERSTE RESPONSIBLE BOND MÜNDEL achieved a performance of about 2.5% in 2024.

 

What are your expectations for 2025?

Expectations of a cut in key-lending rates have accelerated due to the weak economic growth in Austria and the Eurozone to date, where no significant improvement is currently being forecast for 2025, and due to the now lower, stable inflation rates. Accordingly, we still expect the ECB to cut interest rates in December 2024, followed by a series of further cuts in 2025.

 

 

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

Building on this, in 2025 the fund management team will focus primarily on managing duration in the longer maturity segment and on managing the yield curve.

Despite its reduction, the mortgage bond allocation also still represents a strategic focus for 2025 and will be adjusted accordingly depending on the further development of the interest rate differential.

ERSTE RESPONSIBLE BOND MÜNDEL

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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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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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Subject to misprints and errors.