Ethenea has received approval from Luxembourg regulator CSSF to remove equities, precious metals and commodities from its Ethna-Defensiv multi-asset portfolio, transforming the fund into a pure bond strategy.
Of the 280 million euro in the fund, which had had a multi-asset portfolio since 2007, 14 percent is currently invested in European government bonds, 80.5 per cent in high-quality corporate bonds and 5 per cent in high-yield bonds.
“We want to keep the strategy simple, understandable and transparent,” said Luca Pesarini, senior portfolio manager and co-founder of Ethenea, about the strategy change.
Ethenea’s portfolio management team, which began transitioning from a multi-asset strategy to a bond strategy in 2021, will now focus on a targeted selection of individual securities and the management of duration, credit and currency risk.
Timing
According to Pesarini, questions about the timing of this decision are justified, especially given the current underperformance of bonds compared to equities and precious metals.
“These questions are justified, but there will always be assets that temporarily offer good diversification. Today that may be gold; in a few months’ time it may be equities. As of now, however, this is irrelevant to this product offering, as the issue of asset class diversification is no longer addressed within the Ethna portfolio, but at the client portfolio level,” Pesarini explained to Investment Officer.
The results were already visible in 2022, according to Pesarini. “The team has shown that the approach works. The portfolio management team continues to focus on bonds and liquidity as central building blocks of the strategy.”
Morningstar calculates the fund’s 2022 return at -3.2 per cent. This year, the fund stands at -0.12 per cent, as of 2 November.
Interest rates peak
Ethenea’s management team believes that key interest rates from the European Central Bank and the Federal Reserve have peaked, potentially reinforcing tailwinds for the strategy. However, interest rate cuts are unlikely in the short term.
“Inflation is still too high, and economies seem to be weathering that well,” said Pesarini. “Therefore, central bank interest rates are expected to remain at current levels for an extended period.”
“As we expect an environment with lower growth rates and a gradual decline in inflation, we believe the probability of falling interest rates is higher than rising rates.”
Despite the narrower focus, management costs remain unchanged. However, Ethna-Defensiv has not charged a performance fee since 2017.