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Yield opportunities of East European bonds still intact

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An interview with Anton Hauser, senior fund manager ERSTE BOND DANUBIA, about the yield opportunities of East European bonds.

Anton Hauser, Senior Fondsmanager ESPA BOND DANUBIA
Anton Hauser, senior fund manager ERSTE BOND DANUBIA

In your opinion, what are the features that speak in favour of East European government bonds?

First of all, the higher yields that East European government bonds currently offer in comparison with euro government bonds. The average yield across the entire bond portfolio is 3.5% . Also, I am quite positive about the good economic data from the region. The rate of inflation is low or falling, economic growth is robust – many central banks can still loosen their monetary policy. This would be positive for bond prices, above all in the case of Turkey.

But the higher yield also reflects higher risk…

Generally speaking, that’s correct. The average rating of all bonds is currently BBB-. By comparison, the average rating of common government bond indices of the Eurozone is A+. Also, the foreign exchange risk has to be taken into account, given that the fund invests two thirds of its assets in so-called local currency bonds. For example, I quite like Polish government bonds denominated in Polish zloty at the moment. I think that the political risk in Poland has been assessed incorrectly. This pushes bond prices down – and as a result, the yields are higher than would be justified.

That means that price fluctuations should therefore be expected? What is the outlook for the ongoing year?

In the year to date the fund has achieved a nice gain of +2.19%; however, on a year-on-year basis it is in slightly negative territory (-0.48%). In the past five years, the fund has gained an annual 3.7%. This performance should also be achievable on average in the coming years.

What might be the risks that could weigh on your positive assessment?

At the moment political factors play a very important role. Along with Poland and Hungary, Russia and Turkey are subject to critical scrutiny by market participants. Whereas the general decline in commodity prices was beneficial to many countries, this was not the case for Russia. Then again, Russia has been the top performer in a year-on-year evaluation in spite of the sanctions.

What advice do you have for the shareholders of this fund?

I have been responsible for this fund for seven years, and have been analysing the region since 1997. There are always weak phases in the life of a fund – which are also opportunities to buy. The zero interest rate policy makes these bonds very attractive – also for institutional investors such as insurance companies or pension funds.

Thank you for the interview.

1) Value as of 30 April 2016. The fund ratio “yield” is defined as average yield of the assets held in the fund prior to any deductions for costs resulting from foreign exchange hedging; please bear in mind that this yield ratio is not equal to the fund performance. The following countries have been taken into account in the calculation: Czech Republic, Slovakia, Poland, Hungary, Russia, Turkey, Romania.
2) Forecasts are no reliable indicator for future developments

1

Risk notes according to 2011 Austrian investment Fund Act:

In accordance with the fund provisions approved by the Austrian Financial Market Authority (FMA), ERSTE BOND DANUBIA intends to invest more than 35% of its assets in securities and/or money market instruments of public issuers. A detailed list of these issuer can be found in the prospectus, para. II, point 12.

 

 

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Legal disclaimer

This document is an advertisement. All data is sourced from ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H., Erste Asset Management GmbH and ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. unless indicated otherwise. 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-SPARINVEST Kapitalanlagegesellschaft m.b.H., Erste Asset Management GmbH and for ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. pursuant to the provisions of the AIFMG in connection with the InvFG 2011 and regarding ERSTE Immobilien Kapitalanlagegesellschaft m.b.H. published in Amtsblatt zur Wiener Zeitung or at the web site www.erste-am.com or www.ersteimmobilien.at .

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 web site www.erste-am.com or www.ersteimmobilien.at 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/KID is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com or www.ersteimmobilien.at .

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.

Paul Severin

Paul Severin has worked at Erste Asset Management since April 2008. Until 2012 he was responsible for the company’s product management; he has directed communications and PR activities since April 2012. From 1992 to 2008, he was director of equity fund management and deputy director for institu...

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Yield opportunities of East European bonds still intact comment      1 Author Reply

  1. Thank you Toni! I think political risks are part of the game everywhere. Stable government and distants election can help risk assessment for Polish bonds. I agree with your Polish overweight.

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