Portfolio Manager Update

To the latest Market Commentary

Macro and markets at a glance

State: 02/10/2026

Here’s what you should keep an eye on this month

• The global economy remains resilient, but energy and geopolitical risks are increasingly affecting its momentum.
• Inflation remains high, mainly due to higher energy prices.
• The Fed and the ECB are tightening monetary policy, despite differing economic conditions.

Despite geopolitical tensions and high energy prices, the global economy remains robust. This means that there are currently no signs of a global recession.

In the US, the Atlanta Fed’s GDPNow estimate for the third quarter was raised to 5 per cent, primarily due to strong domestic momentum. Real consumer demand grew by 4.2 per cent, driven by the ongoing AI investment cycle and robust private consumption. Alongside a stable unemployment rate of 4.1 per cent, the US economy rests on solid foundations. Looking ahead to next year, we anticipate attractive growth rates in light of strong purchasing managers' indices and high investment plans. Politically, the upcoming mid-term elections are likely to result in losses for the ruling Republicans in Congress, reducing US President Trump’s influence during his remaining two years in office. However, this makes greater fiscal discipline unlikely.

The eurozone is performing better than expected at the beginning of this year. GDP rose by 0.6 per cent in the second quarter, prompting the ECB to raise its growth forecast for 2026 to 0.9 per cent. Growth of 1.4 and 1.5 per cent is forecast for the following two years respectively. While this indicates that Europe remains structurally weaker than the US, it does not suggest that a recession is imminent. As in the US, government debt is also under scrutiny in Europe. The upcoming French elections are already having an impact, with a noticeable yield premium emerging on French government bonds compared with German ones – a phenomenon last observed during the eurozone debt crisis.

The picture is mixed when it comes to inflation. Headline inflation in the US remained at 3.4 per cent in August, while in the Eurozone it rose to 3.2 per cent, primarily due to volatile energy prices. However, core inflation, which is more relevant to monetary policy, fell to a welcome 2.4 per cent in both regions and is now just above the central bank’s target of two per cent. As there are no signs of a dangerous wage-price spiral, the disinflationary process remains fundamentally intact, stalling primarily on the supply side.

Against this backdrop, the Fed and the ECB raised interest rates in September and left the door open for further action. While the US Federal Reserve has greater room for manoeuvre due to strong economic growth, and has bolstered its credibility with this move, we are critical of the ECB’s approach. The European interest rate rise is proving increasingly counterproductive as it seeks to combat a supply-side price shock using a tool that primarily affects domestic demand, which is already weak.

Further uncertainty stems from geopolitical factors. The meeting between Donald Trump and Chinese President Xi Jinping merely resulted in a two-month reprieve in the trade dispute, rather than any real breakthrough. There has also been no diplomatic progress regarding the conflicts in Iran and Ukraine. This means that geopolitical risks remain a significant source of uncertainty for energy prices and growth.

Key conclusions:

Over the coming months, we anticipate that the combination of robust growth, rising energy prices and increasingly restrictive monetary policy will be the key drivers of the market. We are monitoring whether energy prices will have a second-round effect on wages and core inflation. If this does not happen, the inflationary pressure will likely be temporary, and the ECB’s hard line will have been an unnecessary brake on growth.

Asset classes

Bonds / Yields

The trend seen in the previous month continued to accelerate in September. In particular, yields on long-dated government bonds rose to multi-year or even decade-highs. This is due more to a rising term premium than to an increase in inflation expectations: the bond market is demanding greater compensation for fiscal risks. In the US, the risk lies in total debt and the interest burden, which now amounts to 4.2 per cent of GDP. Investors' reaction is reflected in the 10-year real yield, which has risen by 45 basis points since the start of the month. In France, the risk is political: the government must pass the 2027 budget without a parliamentary majority, just a few months before the presidential election. The market is responding to this with a significantly higher risk premium: ten-year French government bonds are currently yielding over 120 basis points more than German government bonds, a level last seen during the European sovereign debt crisis. Spreads on corporate bonds have also widened, though they remain at historically low levels and do not yet suggest stress in the bond market. Monetary policy is creating additional pressure: the Fed and the ECB each raised their key interest rates by 25 basis points in September. While the rate rises themselves were largely anticipated, the signals that restrictive policy would continue were new. This led to a reassessment of the interest rate path at the short end of the US yield curve. As yields rose more sharply there than at the long end, the curve flattened slightly.

Summary/Outlook

We consider the recent movements in interest rates to be excessive and advise against interpreting the flattening of the US yield curve as an indication of an impending recession. In our opinion, neither growth concerns nor debt issues justify current yield levels. Taking into account corporate bond spreads, there are attractive entry opportunities, even for high-quality issues. However, our assessment of interest rate trends has so far proved premature. It is therefore important to focus on high quality and be prepared for the possibility that this trend may continue.

Equities

The weakness that is usually seen in September has not materialised this year either. Despite rising interest rates and geopolitical uncertainties, the stock market proved resilient – though this was primarily evident at the index level. Performance was driven mainly by a few mega-caps in the AI, semiconductor, and consumer hardware sectors, while market breadth declined significantly. For instance, the capital-weighted S&P 500 fell by 0.45 per cent over the month, whereas the equally weighted index declined by 4.99 per cent. Conversely, the Philadelphia Stock Exchange Semiconductor Index (SOX) rose by 9.54 per cent. The strain caused by higher financing costs is clearly being felt. However, this is not the case for large technology stocks, which are being discounted more heavily in valuation terms due to their future earnings. Nevertheless, this effect is partly balanced out by the prospect of high returns from ongoing AI investments.

Summary/Outlook

Despite facing a multitude of challenges, the market is demonstrating remarkable resilience. We see no reason why this should change in the short term. This is especially true given that the bond market, with its very moderate credit spreads, is not sending out any warning signals. Given the strong earnings season and positive corporate outlooks, we are maintaining our tactical and strategic overweight position in equities. Furthermore, seasonally speaking, the strongest quarter of the year is now beginning. However, the same applies here: so far in 2026, seasonal trends have not lived up to expectations.

Currencies

In September, the US dollar rose by around 2.5 per cent against the euro. This rise accelerated following the hawkish Fed meeting in the middle of the month. While a slightly wider interest rate differential is currently providing support, the importance of the dollar as a global trade currency, particularly as the petrodollar, is now coming to the fore. Meanwhile, the White House continues to pursue a policy aimed fundamentally at achieving a weaker dollar and improving US competitiveness.

Summary/Outlook

In the long term, we do not expect the Fed to adopt a significantly more hawkish stance, and therefore we do not anticipate any further sustained widening of the interest rate differential. Consequently, we are maintaining our cautious stance towards the US dollar. We view the recent strength as primarily a counter-trend move and a safe-haven effect. Our currency risks remain largely hedged.

Ethna-AKTIV

State: 02/10/2026

Key points at a glance

• Negative monthly performance of -1.47% (YTD: 3.67%)
• Bond allocation reduced from 54.3% to 40.1% (average rating: BBB+ to A-)
• Modified duration: 9.4
• 9% gross equity allocation
• 8% currency risk (2.3% USD, 5.4% JPY, 0.4% GBP)

Fixed income: Reduction in government bond exposure in response to the French crisis

The bond portfolio contributed negatively to performance, at -2.3%. This was due to the accelerated rise in global bond yields, which was at odds with our high duration. The renewed debate over the sustainability of French sovereign debt exerted further pressure. To prevent any risk of contagion, we sold all government bonds and reduced holdings of some corporate bonds. Overall, direct exposure to French companies now stands at around 5%. Despite these transactions, we are maintaining a modified duration of 9.4. The average rating has fallen from BBB+ to A-, while the average yield has risen to 4.8%. The proportion of bonds in the portfolio is now 40.1%, all of which are corporate bonds. The proportion of US dollar-denominated bonds remains at 2.5%.

Equities: Virtually unchanged

Similar to the S&P 500 index, the equity portfolio showed minimal volatility over the month and remained virtually unchanged. The negative impact of interest rates and geopolitical factors was kept well within limits. Both the allocation and the composition remain virtually unchanged, as announced. The portfolio is well positioned for the upcoming earnings season, which we are looking forward to with great optimism, given the current outlook for the forthcoming quarterly results. The number of holdings has fallen by two to 29. The expected P/E ratio is 17.3.

Currencies: US dollar expected to remain weak

We continue to see no reason to expose the portfolio to additional currency risk. The increase in the yen allocation is due to further purchases of Japanese equities. Given the recent reversal in the yen's trend, we are not hedging this risk (5.4%). A minimal position in the British pound (0.4%) also remains unhedged. Including the hedged US dollar allocation (2.3%), the total currency risk stands at 7.8%, higher than the 3.4% recorded last month.

Ethna-DYNAMISCH

State: 02/10/2026

Key points at a glance

• Negative monthly performance of -1.78% (year-to-date: 5.24%)
• 4% gross equity allocation; no derivatives
• 5% bond allocation (short-term AAA bonds); 13.1% cash allocation
• 9% currency exposure (1.8% CHF, 3.6% JPY, 0.2% USD and 0.5% CAD)

Equities: Hardly any changes required

The portfolio's monthly performance in September resulted in a loss of 1.78%. We remain committed to the identified themes. Consequently, there have only been a few minor transactions. The weightings and composition have therefore remained virtually unchanged. The portfolio is thus optimally positioned for the upcoming earnings season. The number of holdings has increased slightly from 51 to 52, and the expected price-to-earnings (P/E) ratio stands at 21.2. To improve understanding of the portfolio, we have split the 'AI beneficiaries' theme into 'Infrastructure & Developers' (11 holdings) and 'Users & Suppliers' (five holdings).

The fixed-income allocation was reduced further in favour of cash, falling from 15.8% to 7.5%. Consequently, the fund’s cash holdings now total 13.1%.

Currencies: Minimal exposure 

The Ethna-DYNAMISCH fund is currently invested 71.7% (gross) in US dollar-denominated equities, down from 74.5% last month. Following hedging, the exposure to the US dollar stands at just 0.2%. We maintain our view that the US dollar is structurally weak, and therefore consistently hedge the dollar exposure. Minimal positions in the Japanese yen (3.6%), Swiss franc (1.8%) and Canadian dollar (0.5%) have only a negligible impact on the risk profile.

Ethna-DEFENSIV

State: 02/10/2026

Key points at a glance

• Monthly performance of -2.82% (YTD: -3.98%)
• Bond allocation significantly reduced to 78.8% (previous month: 97.0%); the main transaction was a reduction in government bonds from 18.6% to 1.3%
• Cash allocation increased to 21.2%
• High-yield allocation reduced to 3.8% (previous month: 5.0%)
• Modified duration: 8.3 (previous month: 8.9)

The risk of contagion affecting European government bonds resulted in a reduction in allocation

In September, there was an accelerated rise in yields at the long end of the euro yield curve. The fund recorded its worst month of the year with a loss of 2.82%. The pattern of losses is clear. All significant contributions to returns came from floating-rate positions, while every long-dated fixed-rate position incurred price loss. The largest unrealised losses are now attributable to Vonovia 2040 (-8.6%), Volkswagen 2035 (-7.9%) and OMV 2040 (-6.9%).

The supranational bond portfolio was wound up completely in September. In response to the resurgent debate surrounding European sovereign debt, the EU bonds maturing in 2039, 2040, 2042 and 2045 were sold off gradually. Overall, the proportion of government bonds fell from 18.6% to 1.3% and are now spread across just two holdings. The proportion of bonds maturing in 2035 or later decreased from 84.7% to 66.0%.

Towards the end of the month, the crossover and high-yield portfolios were streamlined as a further step, with seven positions being closed out. Consequently, the BB+ ratio decreased from 1.8% to 0.6%, and the BBB- and B segments were completely wound down. The HY ratio is now 3.8%, compared with 5.0% the previous month.

The portfolio now consists almost entirely of investment-grade corporate bonds, offering a high level of liquidity. The bond allocation of 78.8% is balanced by a cash allocation of 21.2%. This is the highest level the fund has recorded for years.

Following the removal of the AAA anchor, the average rating has changed from around A/A- to around A-/BBB+. This change is purely structural and does not result from additional credit purchases in the lower credit segment. In fact, the weakest third of the portfolio was actively reduced in September. At 33.1%, the BBB segment has remained virtually unchanged from last month.

As a result of these transactions, the modified duration fell from 8.9 to 8.3.

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