Erste AM launches fund for emerging markets corporate bonds with shorter maturities

  • Facilitates defensive positioning amid rising interest rates
  • Attractive spreads also in the shorter segment
  • Fund currency: US dollar

 

The Austrian Erste Asset Management is launching its ERSTE BOND EMERGING MARKETS CORPORATE SHORT TERM fund with an institutional tranche and a retail tranche. The fund invests in emerging markets corporate bonds in hard currency in the shorter maturity universe, largely with maturities of less than three years. Thus, it allows investors to position themselves defensively amid rising interest rates while providing them with attractive spreads. The fund is denominated in US dollar and was launched on 3 April at an initial volume of USD 20.1mn.

 

Interest rates – back to the future

There are many signs indicating that the Federal Reserve (Fed) has heralded the end of low interest rates with its interest rate hikes. “Members of the Fed expect the Fed funds rate to have increased to 1.375% by the end of 2017, and to be above 2% by the end of 2018. For the long run, they expect the rates to level off at 3%”, as fund manager Péter Varga explains. Investors who failed to adjust their bond strategies in time would face substantial losses in income. According to Varga, bonds with shorter maturities that offer better stability in an environment of rising interest rates are a viable alternative.

 

Emerging markets corporate bonds offer attractive spreads even for shorter maturities

The strategy to combine shorter maturities and bonds from emerging markets gives investors the chance of above-average yields. Especially the short maturity segment of emerging markets corporate bonds still offers attractive spreads. “The spreads of bonds with a maturity of one to three years are only 20bps lower than for a maturity of seven to ten years,” says Varga. “The targeted addition of the 3Y-5Y segment allows investors to benefit from further positive effects. The spreads are here at the moment clearly above those of all the other investment horizons.”

 

The start portfolio of the fund consists of 71 titles with a minimum rating of B-. Corporate bonds with a maturity of less than three years account for about two thirds of assets under management. China (13%), Brazil (13%), India (10%), Turkey (9%), and Russia (9%) command the biggest country weightings. The yield of the entire portfolio in US dollar is above 3.7%. The modified duration is 2.5%.

 

ERSTE BOND EMERGING MARKETS CORPORATE SHORT TERM – profile 

Institutional tranche: ERSTE BOND EMERGING MARKETS CORPORATE SHORT TERM USD I01 – available share categories: AT0000A1U9M5 (distributing) AT0000A1U9P8 (accumulating) AT0000A1U9Q6 (fully accumulating)
Retail tranche: ERSTE BOND EMERGING MARKETS CORPORATE SHORT TERM USD R01 – available share categories: AT0000A1ULN6 (distributing)
Fund launch date: 3 April 2017
Initial calculated value: USD 100 on 3 April 2017
Load: Up to 2.50 %
Management fees:

0.58 % (retail tranche)

0.30 % (institutional tranche, minimum investment USD 5mn)

Redemption price: Calculated value
Fiscal year: 1 April to 31 March
Dividend distribution date: 1 July (first distribution 1 July 2018)
Depositary bank: Erste Group Bank AG
Withholding tax category: Subject to final taxation for Austrian retail investors; the tax treat-ment depends on the individual situation of the respective investor and relates to the governing law at the time of going to press.
Issuer: ERSTE-SPARINVEST KAG

 

Benefits of the fund

  • Broadly diversified, global investment in emerging markets corporate bonds with shorter maturities
  • Chance of attractive ongoing returns and capital gains

Risks of the fund

  • The fund may be subject to strong fluctuations (i.e. high volatility)
  • Due to investment in foreign currency the share value in euro may be burdened by foreign exchange fluctuations
  • Capital loss is possible

 

Erste Asset Management GmbH (www.erste-am.com) coordinates, and is responsible for, the asset management activities (asset management based on investment funds and portfolio solutions) within Erste Group Bank AG. At its locations in Austria, Germany, Croatia, Romania, Slovakia, the Czech Republic, and Hungary, it manages assets of about EUR 57.2bn (as of December 2016).

 

Foto: 
Péter Varga, Senior Fondsmanager
Veröffentlichung honorarfrei, alle Rechte bei Erste Asset Management

Disclaimer:

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English. The prospectus for UCITS (including any amendments) is published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the InvFG 2011 in the currently amended version. 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 connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the key investor document/KID can be viewed in their latest versions at the website www.erste-am.com or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the key investor document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.