Investing in our strongest convictions – fundamental bond selection at ETHENEA
Munsbach, 18th June 2020 – In recent years, low interest rates worldwide have offered companies favourable refinancing conditions. However, given the current market environment as a result of the Covid-19 pandemic, there are doubts about the solvency of these companies. Dr. Volker Schmidt explains how ETHENEA's bond selection within the Ethna-AKTIV and the Ethna-DEFENSIV is designed for exactly these types of situations.
In the current crisis, it was virtually impossible to sell corporate bonds in the short term and the interim price losses were considerable. This prompted many companies to quickly draw down their available credit lines with their banks in order to create more financial freedom. It was only the intervention of the central banks and their bond purchases that led to a marked recovery. Thanks to the support packages, companies with robust business models were quickly able to raise additional liquidity on the bond markets. This shows how important it is for funds with a long-term and risk-minimising strategy, such as the Ethna Funds, to select robust business models and sectors. Another important factor is the market position within an industry, whether in terms of economy of scale or cost advantages. An example of this is the hotel and cruise industries - at the beginning of the year no one could have predicted the problems they would face. Yet despite this, the market leaders, Marriott and Carnival in particular, have succeeded in obtaining urgently needed liquidity to the tune of billions on the bond market.
At ETHENEA, we use a systematic selection process to identify the bonds that offer us the most attractive risk/reward profile. Thanks to our independence from benchmarks, we only invest in our strongest convictions. We base the selection of securities for our bond portfolio on the following criteria: creditworthiness, attractiveness and tradability. Our aim is not only capital preservation but also the creation of long-term value.
The creditworthiness of issuers forms the basis of a comprehensive sector and company analysis, which primarily includes fundamental analyses of the companies' profit and loss statements, balance sheets and cash flow. We use this credit assessment as a basis for determining the attractiveness of the bonds and, in this way, take advantage of their performance potential.
Unlike rating agencies, our internal monitoring process continuously determines whether relevant company, sector or country-specific events necessitate a reassessment of the issuer's creditworthiness and the attractiveness of its bonds.
Finally, we have high expectations when it comes to the tradability of our bonds to ensure we can manage the portfolio flexibly, even in the current difficult market phase. With our analysis, we are able to promptly make an initial assessment; for quality assurance purposes, the bond team continually discusses and reassesses these opinions, and the close interaction with the Portfolio Management/Execution Teams ensure that the ideas can be implemented at an early stage.
We are convinced that this selection process, in combination with the allocation components of equities, currencies and commodities in the Ethna-AKTIV and the Ethna-DEFENSIV, will help our clients to achieve their investment goals even in the current volatile markets.
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
email@example.com · ethenea.com
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