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

  • Review: positive performance in the year to date, slightly outperforming the overall market for impact bonds due to the fact that the stable spreads on corporate bonds supported the performance; burdened by unhedged USD position (about14%).
  • Current investment structure: green bonds (67%), sustainability bonds (14%), social bonds (11%), sustainability-linked bonds (5%), rest in cash.
  • New issues play an important role – issue activity in H1 weaker than expected.
  • Positioning for the second half of the year: possible increase in duration for EUR bonds, cautious USD positioning remains unchanged.

Fund manager Martin Cech
(c) Stephan Huger

Fund & Performance

ERSTE RESPONSIBLE BOND GLOBAL IMPACT is a global bond fund that invests in green bonds, climate awareness bonds and certified social bonds. Securities are acquired that are classified as sustainable by the management company based on a predefined selection process. The fund invests in government bonds, in issues from government-related and supranational issuers, in corporate bonds, in bonds from financial service providers, in "Pfandbriefe" and in special sustainable bond issues. Foreign currency risks are actively taken and can amount to up to 50% of the fund's assets. A measurable positive impact on the environment and society is at the forefront of the investment decision.

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 Martin Cech

What sort of conclusion do you draw from the first half of 2025 on the capital markets?

ERSTE RESPONSIBLE BOND GLOBAL IMPACT has achieved a slightly positive performance in the year to date, slightly outperforming the overall market for impact bonds. The stable spreads on corporate bonds supported the performance. However, the addition of unsecured USD positions (about 14%) had a negative impact in the current currency environment. The fund's duration has remained largely stable since the beginning of the year, ranging from 5.0 to 5.5 years. In addition to euro bonds, foreign currencies such as USD, GBP, CAD, AUD, NOK, NZD, and SEK were added to the portfolio. We manage currency hedges by using Erste Asset Management's FX model, which decides whether positions are hedged or left open. Top positions in the portfolio at the end of the financial year included Société des Grands Projets, Italy, Tennet, the World Bank, and Telefónica. The portfolio is complemented by green bonds from emerging markets, such as Klabin, and government bonds from Uruguay. The focus is on good to very good credit ratings, although smaller additions from high-yield and unrated issuers are also possible.

Please note: the companies listed here have been selected as examples and do not constitute any form of investment recommendation.

As an Article 9 fund, the fund meets Erste Asset Management's strict sustainability criteria and remains consistently impact-oriented in the current market environment. New issues play an important role in fund management. The market for ESG bonds continues to develop dynamically, with weaker issue activity observed in the first few months of 2025 that then picked up again in May.

 

What is your current positioning in the fund?

The fund is positioned as follows:

  • Overweighting of financial services providers and industrial companies relative to government bonds. Regions, supranational issuers, and agencies are also overweighted due to their higher current yields relative to government bonds.
  • Despite increased volatility, corporate bonds generated their current carry/risk premium in 2024 and 2025 YTD and outperformed the overall investment grade market.
  • Currencies: overweighting of EUR exposure, USD exposure with short duration (2.4 years) gradually reduced, further FX exposure added to a small extent (GBP, SEK, CAD, NOK, AUD, NZD). FX exposure of just over 20% in total unhedged since the beginning of the year.
  • Dominant weighting in green bonds (67%) ahead of sustainability bonds (14%) and social bonds (11%). Sustainability-linked bonds blended into the portfolio in small amounts at just under 5%.
  • Active participation in new issues (11 positions purchased on the primary market since the beginning of the year), with the strongest focus on financial services providers.
  • Ratings: broad diversification in the investment grade segment with small additions of high-yield and unrated bonds (2.5%).

 

How would you assess the current market environment?

In 2025, the ECB has already lowered its key-lending rate from 3.15% to 2.15% in four steps, as the inflation rate is moving towards the ECB's target of 2.0%.

We may increase the duration of the (dominant) EUR block in the course of the year if the environment is conducive, with less inflationary pressure and potential for economic growth.

We believe the US Federal Reserve will adopt a wait-and-see approach. The economic development from here on in is subject to considerable uncertainty. The outlook for the US dollar has shifted from bullish at the beginning of the year to sideways/rather more bearish. We therefore remain cautious about USD exposure and duration positioning.

We expect ESG bond issues to increase in the course of the year. The “green premium” has been declining recently. We will closely monitor further developments, particularly how increased issue activity will affect this and which market segments will be impacted. Accordingly, we will continue to be selective when choosing ESG bonds for the portfolio.

 

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.

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.

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.

Please note: 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 § 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 § 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.

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 Erste Bank and austrian Sparkassen banks.

Please also read the “Information about us and our securities services” published by your bank.