

Credit Risk as a Strategic Catalyst
Read the market analysis and fund positioning
Credit risks are considered a latent threat. They represent a serious source of danger for portfolios. While many traditional approaches accept these risks as inevitable, we view them as an actively manageable variable – crucial for making the difference between average returns and outperformance. In an environment of systemic risks and heightened correlations (often approaching 1 during periods of stress), simple diversification falls short. This is particularly evident in the high-yield bond segment: the close linkage to equity markets regularly leads to painful losses during crises. For example, the correlation coefficient between the S&P 500 and the ICE BofA US High Yield Index rose above 0.8 during the 2008 financial crisis and the 2020 COVID-19 pandemic – compared to 0.3 to 0.5 during calmer market periods.
Beyond Risk Avoidance: Strategic Active Management for Genuine Diversification
Our approach sets us apart from conventional strategies. Rather than passively accepting risks, we actively manage them to create a strategic advantage. In the Ethna-AKTIV fund, we deliberately avoid investments in high-yield bonds — not simply to reduce risks, but because it is inefficient to hold an asset class that behaves almost identically to equities during periods of market stress and simultaneously becomes highly illiquid. We focus on achieving true diversification — rather than just the appearance of it — to enhance resilience and preserve capital, even in volatile markets.
Three Pillars for Sustainable Value Creation
Our credit risk management is built on three core components: fundamental analysis, valuation discipline, and liquidity management.
-
Fundamental Analysis as an Early Warning System:
True risk-return optimization requires the ability to identify and take appropriate risks at opportune moments. The most effective tool for achieving superior risk-adjusted returns is in-depth fundamental analysis. We analyze macroeconomic influences with focus and complement this with a close watch on sector and company fundamentals. Rating agencies often provide ex-post diagnoses — we aim to act preemptively. Our internal analysis thoroughly examines companies, assessing their business models and strategic positioning before official rating updates are released. Studies show that about 60% of corporate bond rating downgrades could already be anticipated based on fundamental changes in business models or balance sheet structures before rating agencies reacted. Integrating macroeconomic factors into our investment process further enables us to anticipate interest rate cycles, economic developments, and geopolitical risks, allowing us to adjust both the duration and credit quality of the portfolio early on. -
Valuation Discipline Over Market Herd Mentality
Our active positioning in the credit market is driven by strict valuation discipline. We do not blindly follow the market; instead, we act opportunistically when attractive valuations and spreads emerge that adequately compensate for the credit risk taken. We conduct in-depth analysis of credit spreads in relation to expected default probabilities and recovery rates in the event of default. Our goal is to identify asymmetric risk premiums where the upside potential outweighs the downside risk. Conversely, we hold back or reduce our positions when spreads are too tight and do not sufficiently reward the risk. When the market becomes overly optimistic about credit risk and spreads tighten to historically narrow levels, investors are no longer adequately compensated for potential losses. In such cases, capital preservation takes precedence over chasing short-term yield. This disciplined approach allows us to maintain liquidity for more attractive opportunities in future market phases. A concrete example of this approach was our decision to reduce BBB risk exposure in the Ethna-DEFENSIV some time ago, as spreads in this segment no longer adequately compensated for the assumed risk. -
Liquidity Management as a Strategic Reserve:
Liquidity management is a crucial pillar of our strategy. In times of market stress, liquidity becomes the most valuable currency. Therefore, our portfolios are designed to ensure we remain fully capable of acting at all times. This allows us to seize opportunities or meet client redemption requests without being forced into distressed sales. Empirical studies have shown that bid-ask spreads for less liquid bonds can widen by up to 200% during periods of elevated market volatility (e.g., VIX > 30).
Current Positioning: Quality as a Shield
Our current credit risk philosophy is directly reflected in the average credit rating of our funds. Both the Ethna-AKTIV and the Ethna-DEFENSIV maintain a rating between A- and A. A fundamental pillar of our active credit risk management has been the decision to invest in the higher-quality segment of the investment-grade universe. While many market participants are willing to accept significantly lower ratings and correspondingly higher default risks for marginally higher returns, we focus on issuers with strong credit quality and robust financial health. This not only ensures a higher probability of capital preservation but also allows us to remain flexible and seize opportunities during volatile market phases. The higher quality of the portfolio reduces sensitivity to economic shocks and systemic risks, ensuring more stable performance — particularly during periods of stress, when capital preservation becomes the highest priority.
Conclusion: Credit Risk as a Manageable Source of Return
In a volatile world, passive diversification is no longer sufficient. Successful credit risk management requires expertise, systematic processes, and active oversight. In-depth analysis, strict valuation discipline, and active liquidity management are the tools we use to transform risks into a controlled source of sustainable returns. Shaping the future actively rather than merely managing — all in the interest of delivering absolute performance for the capital entrusted to us.
Please contact us at any time if you have questions or suggestions.
ETHENEA Independent Investors S.A.
16, rue Gabriel Lippmann · 5365 Munsbach
Phone +352 276 921-0 · Fax +352 276 921-1099
info@ethenea.com · ethenea.com
This marketing communication is for information purposes only. It may not be passed on to persons in countries where the fund is not authorized for distribution, in particular in the USA or to US persons. The information does not constitute an offer or solicitation to buy or sell securities or financial instruments and does not replace investor- and product-related advice. It does not take into account the individual investment objectives, financial situation, or particular needs of the recipient. Before making an investment decision, the valid sales documents (prospectus, key information documents/PRIIPs-KIDs, semi-annual and annual reports) must be read carefully. These documents are available in German and as non-official translations from ETHENEA Independent Investors S.A., the custodian, the national paying or information agents, and at www.ethenea.com. The most important technical terms can be found in the glossary at www.ethenea.com/glossary/. Detailed information on opportunities and risks relating to our products can be found in the currently valid prospectus. Past performance is not a reliable indicator of future performance. Prices, values, and returns may rise or fall and can lead to a total loss of the capital invested. Investments in foreign currencies are subject to additional currency risks. No binding commitments or guarantees for future results can be derived from the information provided. Assumptions and content may change without prior notice. The composition of the portfolio may change at any time. This document does not constitute a complete risk disclosure. The distribution of the product may result in remuneration to the management company, affiliated companies, or distribution partners. The information on remuneration and costs in the current prospectus is decisive. A list of national paying and information agents, a summary of investor rights, and information on the risks of incorrect net asset value calculation can be found at www.ethenea.com/legal-notices/. In the event of an incorrect NAV calculation, compensation will be provided in accordance with CSSF Circular 24/856; for shares subscribed through financial intermediaries, compensation may be limited. Information for investors in Switzerland: The home country of the collective investment scheme is Luxembourg. The representative in Switzerland is IPConcept (Suisse) AG, Bellerivestrasse 36, CH-8008 Zurich. The paying agent in Switzerland is DZ PRIVATBANK (Suisse) AG, Bellerivestrasse 36, CH-8008 Zurich. Prospectus, key information documents (PRIIPs-KIDs), articles of association, and the annual and semi-annual reports can be obtained free of charge from the representative. Information for investors in Belgium: The prospectus, key information documents (PRIIPs-KIDs), annual reports, and semi-annual reports of the sub-fund are available free of charge in French upon request from ETHENEA Independent Investors S.A., 16, rue Gabriel Lippmann, 5365 Munsbach, Luxembourg, and from the representative: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg. Despite the greatest care, no guarantee is given for the accuracy, completeness, or timeliness of the information. Only the original German documents are legally binding; translations are for information purposes only. The use of digital advertising formats is at your own risk; the management company assumes no liability for technical malfunctions or data protection breaches by external information providers. The use is only permitted in countries where this is legally allowed. All content is protected by copyright. Any reproduction, distribution, or publication, in whole or in part, is only permitted with the prior written consent of the management company. Copyright © ETHENEA Independent Investors S.A. (2025). All rights reserved. 30/05/2025