New maturity fund in a strongly improved interest rate environment
The new, fixed-term ESG fund, Raiffeisen-Mehrwert-ESG 2028 II, will reap the benefits of the significantly improved yield environment. In the current market situation (as of 22 March 2023), the fund’s conservative investment concept makes it possible to achieve attractive yields, despite being weighted strongly in favour of better ratings in terms of the relationship between investment grade and high yield bonds.
Conservative portfolio for enhanced security
Raiffeisen-Mehrwert-ESG 2028 II’s portfolio structure consists of 90% investment grade bonds and 10% high yield bonds, with broad diversification of the fund assets across numerous issuers resulting in a low weighting of individual issuers. With this conservative portfolio, the fund can generate attractive, highly predictable returns over the coming years. With a particular eye to recent events (cf. Credit Suisse, US bank failures), upon launch in May special attention was paid to the ratio of financial institution bonds versus non-financial corporate bonds. In this regard, there is a clear focus on risk reduction, especially since a conservative approach and returns are not mutually exclusive in the current market conditions.
Focusing on sustainability
Raiffeisen-Mehrwert-ESG 2028 II invests exclusively in bonds issued by companies that have been determined to be sustainable on the basis of ESG criteria applied within the framework of a strict sustainability concept. For example, there is no investment in issuers which conduct even small amounts of business in the fields of oil, gas or nuclear power. Compared to funds that do not invest according to ESG principles, the investment universe is naturally smaller due to consideration of the ESG criteria. However, in the high yield segment in particular, the focus on ESG mainly results in higher-risk issuers being ruled out. While this may mean giving up a couple of basis points of return on the one hand, it again underlines the fund’s conservative strategy on the other.
Yields currently offer a risk buffer
Compared to past years, the risk-return constellation for corporate bonds is much better now and, generally speaking, the fundamental situation of most companies also remains good. At present, default rates are still at low levels. While they will probably rise again, the markets are already pricing this in for the most part. In very general terms, looking at all maturities and rating classes, bond prices are roughly discounting a return to the long-term historically average values for default rates. At the moment, the risk premiums and absolute yields offer a quite good risk buffer for any negative market trends on the whole.
However, corporate bonds are not risk-free. In the event of a severe or protracted recession for example, or major financial market turmoil or economic shocks, prices can be expected to decline, possibly leading to loss of capital. At this juncture, however, such a scenario is not anticipated. Nevertheless, it is not possible to foresee what will occur in the next three to five years. This also applies to the interest rate risk in relation to the reinvestment of maturing bonds in the fund portfolio. The yields then possible may be higher or lower than currently foreseeable.
Raiffeisen-Mehrwert-ESG 2028 II at a glance:
Fund launch: 23 May 2023
End of fund term: 28 April 2028
The fund invests exclusively in bonds issued by companies that have been determined to be sustainable on the basis of ESG criteria.
Investment grade bonds account for roughly 90% of the fund portfolio, with high yield bonds making up the remaining 10%.
In order to reduce the risk of potential bond defaults, the fund portfolio will be very broadly diversified.
Investments in funds are subject to the risk of price fluctuations and capital losses. For example, fluctuations in the prices of securities held by the fund can have a negative impact on the return, and it is not possible to rule out a loss of capital even if the investment is held for the entire term. As part of its investment strategy for Raiffeisen-Mehrwert-ESG 2028 II, six months or less prior to the end of the fund’s term, the management company may mainly invest in sight deposits.