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

  • Market environment: increased volatility on the bond markets due to geopolitical and economic developments (US tariff policy, German investment programme, ECB interest rate cuts).
  • Fund focus in the first half of the year: investment-grade corporate, government, and emerging markets bonds; absolute-return funds, convertible bonds, and Asian high-yield corporate bonds blended in; reduction of the money market position; currency: focus on the euro, USD hedged
  • Outlook: further reduction in money market investments expected; continued focus on European investment-grade corporate bonds with high-yield bonds blended in; we expect to continue hedging foreign currencies

Fund manager Gerhard Beulig
(c) Samuel Kreuz

Fund & Performance

ERSTE SELECT BOND DYNAMIC flexibly invests in different bond segments such as national and international government bonds, corporate bonds ("investment grade" and "high yield"), emerging market bonds in hard and local currency, as well as international mortgage bonds. The proportion of risky papers (rating worse than investment grade) with higher interest rates may not exceed 50%, the proportion of alternative investments may not exceed 10% of the total fund volume.

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 Gerhard Beulig

How did ERSTE SELECT BOND DYNAMIC perform in the first half of 2025?

The fund achieved a small gain of around 0.5% in the first half of the year. The events that had the greatest impact on the bond markets were the change in US tariff policy, Germany's announcement of a major investment programme in defence and infrastructure, and further interest rate cuts by central banks, particularly the ECB.

What were the fund’s main areas of focus in the first half of 2025?

In accordance with the fund's investment guidelines, the focus was on European investment-grade corporate bonds and government bonds. US corporate and government bonds, high-yield corporate bonds, emerging market bonds and, to a lesser extent, convertible bonds were added to the portfolio at times. It was important to focus on the euro, as the US dollar lost about 10% of its value. US positions, if any, were hedged, which helped significantly.

 

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 economy could experience a weaker phase due to the tariffs which will have come into effect by then. Inflation should remain close to the ECB's target of 2% in the Eurozone, while a temporary spike is likely in the USA due to the tariffs. Bond markets will continue to fluctuate between high issue activity, particularly by governments, higher deficits, and economic concerns. Much like in the first half of the year, we expect a volatile sideways movement.

 

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

Due to the now steep yield curve, we will continue to reduce money market investments in the fund, like we did in the first half of the year. We favour investment grade corporate bonds, mainly from Europe, and high-yield bonds due to their yield and medium duration profile. We will remain cautious about foreign currency investments, and we are likely to continue hedging against currency risk.

 

Please note: investing in securities involves risks as well as opportunities.

Hinweis: Bitte beachten Sie: Der Durchschnittskosteneffekt nimmt mit zunehmender Laufzeit des Sparplans ab, da sich das angesparte Vermögen immer mehr so verhält, als hätte man einmalig den Gesamtbetrag angelegt. Je nach Marktentwicklung kann sich eine Einmalveranlagung auch als günstiger erweisen. Eine Veranlagung in Wertpapiere birgt neben Chancen auch Risiken.

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