Discussions regarding customs tariffs and geopolitical tensions were the main focus in the first six months of the year on the financial markets. Where are the markets headed in the second half of 2025?

In our Funds check series, fund managers from selected funds look back on the past year's performance and give their assessment of what we can expect for the rest of the year. (Please note that forecasts are no reliable indicator of future performance and that investing in securities involves risks as well as opportunities.)

Summary

  • The performance of ERSTE RESERVE CORPORATE in the year to date has been satisfactory for a short-term fund at 1.30% (as of 2 July 2025).
  • The fund's interest rate sensitivity was kept in the upper third of the range in order to take advantage of falling interest rates.
  • Due to the slightly higher credit spreads compared to the overall market and the strong fundamentals of banks, we regard this sector as attractive.
  • In order to continue to generate additional returns in the money market segment, we may increase the high-yield allocation can be increased.

Fund manager Matthias Hauser
(c) Stephan Huger

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 the first half of 2025?

The performance of ERSTE RESERVE CORPORATE in the year to date has been satisfactory for a short-term fund at 1.30% for a short-term fund (as of 2 July 2025). The main drivers were the current yield earned and the slight decline in interest rates, which had an overall positive impact on performance. The year 2025 has held a number of surprises in store so far. The first major surprise for the interest rate market was not long in coming, with Germany's announcement that it would put together a substantial fiscal package. German government bond yields recorded their biggest one-day rise since reunification. The EUR investment-grade corporate bond market was largely unaffected by any interest rate volatility, and credit spreads moved in only one direction until the beginning of April: lower. The second surprise – US tariffs against the rest of the world – had a more significant impact, with credit spreads widening by around 30bps. However, thanks to the short remaining term of the securities, there was no active need to sell for us. Our cash reserve even allowed for opportunistic purchases of excessively extended securities. At the end of May, spreads returned to pre-tariff announcement levels.

 

What are the expectations of your fund management team with regard to global economic development and trends, among other things, for the second half?

The unpredictable trade policy of the USA will remain a key issue on the market, as will its impact on potential inflation in the USA. An interest rate cut in the United States could happen at the end of the year, but the market’s opinion is divided on this. A distinction must be made here between the USA and Europe, as the ECB has already cut interest rates several times and lowered its inflation outlook; and further interest rate cuts cannot be ruled out.

 

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

As interest rates are expected to remain volatile in 2025 amid a slight downward trend, we will continue to keep the fund's interest rate sensitivity in the upper third of the range. In addition, the proportion of variable-rate securities will continue to decline in favour of fixed-rate securities. Both measures should have a positive effect in an environment of falling interest rates. A possible steepening of the yield curve could make it more sensible to position the fund in favourable areas of the curve again. Any increases in credit spreads will be reflected in the fund in the short term but will not have a material impact due to our buy-and-hold approach. On the contrary, ongoing redemptions could be reinvested if credit spreads were to rise, thus leading to more attractive investment opportunities. In order to continue generating surplus return in the money market segment, we may increase the high-yield allocation. The fund's allocation to BBB-rated securities is also likely to rise again. The fund has arguably benefited from the interest rate environment over the past two years. Thanks to its flexibility, it can adapt quickly to a new market environment and is also well equipped to meet the challenges and opportunities of 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. 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 § 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 § 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 fund prospectus or the Information for Investors pursuant to Art 21 AIFMG and the key information document are 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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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. Past performance is not a reliable indicator of the future performance of a fund.

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