How did the fund perform in 2025?

The fund achieved a performance of 4.3% in 2025 despite the global geostrategic and political turmoil. The main drivers were:

• Current interest income: most recently, the average coupon was 3.96%.
• The slight decline in spreads on both subordinated investment-grade corporate bonds from the non-financial sector (hybrids) and subordinated financial issues (Tier 2 capital).

The decline in spreads was driven by strong inflows into high-quality corporate bonds, but also by a “convergence from below”, as it were. This means that the underlying reference curve for German government bonds lost credit quality. Following the suspension of the debt brake and various special funds, Germany is expected to incur new debt over the next five years on a scale that we have only seen since the German reunification in the early 1990s. The yield on the 5Y German benchmark bond rose slightly during the observation period, whereas the overall return on the German government bond index was clearly negative since the beginning of 2025.

Please note: Past performance is no reliable indicator of the future value development of the fund. Investing in securities involves risks as well as opportunities.

In the first week after Liberation Day on 2 April 2025, when President Trump announced extensive tariff increases, credit spreads rose significantly. However, as the market increasingly realised that US import tariffs would not be implemented to the feared extent and that there would be no significant slowdown in US growth, spreads narrowed again. The utilities and telecommunications sectors dominate in the category of subordinated bonds from the non-financials segment; neither of these two sectors is directly affected by US tariff policy.

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

The fund invested predominantly in EUR (approx. 87% of fund assets under management) on a regional basis. Investments in USD accounted for approximately 12%, with currency risks almost completely hedged. The four largest sectors were: utilities, banks, energy, and insurance. 78% of the bonds were rated BBB. The five issuers with the highest weightings were: BP, Iberdrola, VW, Nextera Energy, and Eni.

Please note: The companies listed have been selected as examples and do not constitute investment recommendations. There is no guarantee that the securities will remain in the portfolio permanently.

What are the expectations of your fund management team with regard to global economic development and trends, among other things, for 2026?

As long as recession risks are priced in and key-lending rates remain stable, as is the case in the Eurozone, for example, or are falling, as in the USA, the corporate bond markets should generally remain well supported. We also expect further inflows into credit in 2026. There is also pressure from below on spread compression because the credit quality of the benchmark, the Federal Republic of Germany, is deteriorating and its new issue volume is rising. Although valuations for hybrids and subordinated financial bonds appear quite expensive by historical standards, the subordinated spectrum is characterised by a defensive nature in three respects:

• Defensive sector mix (utilities, energy)
• Solid issuers, whose senior rating has to be at least BBB+ for the subordinated rating to still be investment grade
• Relatively shorter interest rate duration compared to broad investment grade corporate indices

Technically, the hybrid market should therefore remain well supported. On the primary market, we can see multiple oversubscriptions and spreads narrowing by 35 to 40bps compared to the initial indication at the opening of the syndicate book. We continue to consider the risk of maturity extensions for individual bonds to be on the lower end of the spectrum. This has also declined significantly in the real estate sector.

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

Assuming that there will be no increase in volatility in government bond yields, we remain fully invested with low cash ratios and an interest rate and spread duration close to that of the benchmark universe. Our USD interest rate exposure is largely represented by US interest rate futures; we have started to switch from buying USD-denominated bonds to buying EUR-denominated bonds instead, which reduces FX hedging costs. In anticipation of steeper yield curves, we are pursuing a slight bullet strategy, and we maintain the country underweighting in France and the USA, respectively. The triple-B rating segment remains overweight.