Portfolio Manager Update

Still Waters, Troubled Depths

State: 02/06/2026

The global economy entered May shouldering a dual burden: a blockade of the Strait of Hormuz that showed no signs of breaking, and energy prices that have moved from cyclically elevated to structurally entrenched. Diplomatic efforts to resolve the standoff have, thus far, come to nothing. The one flicker of encouragement came from the Trump-Xi summit — a meeting that produced no breakthrough on trade but, crucially, stopped short of making things worse. In the current climate, that alone counted as a win.

The improving headline readings from the manufacturing sector are masking a more serious problem.

The recent uptick in leading indicators does not reflect healthy underlying demand. Instead, it is largely an inventory story — companies have been stocking their shelves, and that restocking cycle is papering over a deeper weakness in end-market demand. At the same time, the energy crisis is now reaching consumers directly, pushing savings rates higher and prompting a visible pullback in discretionary spending.

What is coming into focus is a split-screen economy. Investment momentum in the technology sector remains strong, fueled by the race to build out artificial intelligence infrastructure. But beyond that narrow lane, the picture deteriorates quickly. Consumption and capital allocation are increasingly concentrated among a handful of large corporates and wealthy households. Smaller businesses and energy-intensive industries are being squeezed from both sides — rising input costs on one end, softening demand on the other — with margins bearing the full brunt. Meanwhile, public finances are being pushed into an increasingly uncomfortable corner.

The risk is not a sharp, sudden break. It is a slow, uneven hollowing-out — one that aggregate numbers are, for now, doing a reasonable job of concealing.

The ECB has signaled, in unambiguous terms, that a rate rise in June is likely. We view that move not merely as premature, but as a policy mistake. The current inflation impulse is energy-driven — a supply-side phenomenon that higher borrowing costs are structurally ill-equipped to address. Raising rates into this environment would further depress an already weakened demand picture without touching the root cause. It would be the right medicine for the wrong disease.

The Fed, for its part, is holding its fire. Faced with a contradictory data landscape, it is resisting the temptation to pivot prematurely — a posture that, in our view, reflects a more sober reading of the situation.

Key Conclusions

A cyclical slowdown is coming. Once the inventory restocking cycle in manufacturing runs its course, the underlying demand weakness it has been concealing will become harder to ignore. That much seems clear.

However, this cyclical weakness is countered by significant forces: Fiscal policy remains expansionary. Household balance sheets, for now, are still largely intact. And above all, there is the technology investment cycle, which is operating on a scale that deserves more analytical respect than it typically receives in cyclical discussions.

The buildout of data centers and network infrastructure is not a short-term demand story. It is a structural reordering of global industrial activity and supply chains — one with the potential to sustain capital goods demand long after the inventory cycle has rolled over. More importantly, the productivity gains that this investment wave is laying the groundwork for are, in our view, the most underappreciated variable in the medium- to long-term growth outlook. For us, this is the central pillar of our constructive view: Productivity is ultimately what transforms a cyclical recovery into a durable expansion — and the current technology investment cycle may prove to be one of the more consequential sources of it in a generation.

 Calm is Not Stability

Strong corporate earnings drove equities higher, while geopolitical turbulence pushed yields to year-to-date highs — before pulling them back down. Those mistaking the calm on the surface for stability would do well to look more closely.

Bonds / Yields

The bond market in May offered a textbook illustration of the forces currently driving capital markets. On one hand, credit spreads — already at historically tight levels — compressed further, moving in lockstep with strong equity performance and a robust earnings season. On the other hand, rate movements were squarely a function of shifting inflation expectations amid an unsettled geopolitical backdrop. New year-to-date yield highs were reached across the entire curve in both the U.S. and Europe. Yet growing hopes for a near-term de-escalation of the Middle East conflict were enough to pull yields back to prior-month levels by month-end.

Summary

With credit spreads at historically tight levels, we see no compelling case for repositioning. We are unwilling to take on additional credit risk in pursuit of marginal yield pickup. Instead, extending duration strikes us as the more attractive play — one that positions portfolios to benefit from the anticipated stabilization, or gradual decline, in long-end yields. We regard the recent flare-up in near-term inflation concerns as overdone and secondary to the longer-term trajectory. The latest market move looks more like a transient overshoot than the start of a structural repricing.

Equities

Equities extended their advance in May, powered by a strong earnings season. Semiconductor names and software titles were the standout outperformers. Even the protracted back-and-forth - and ultimate absence of progress - in Middle East negotiations proved insufficient to interrupt the rally. The one blemish on an otherwise constructive tape is a meaningful narrowing of market breadth.

Summary

Strategically, the case for continued optimism remains intact. Upwardly revised earnings estimates and sustained fiscal stimulus top the list of supporting factors. A resolution of the Iran conflict, should one materialize, could provide a further meaningful tailwind. Tactically, however, we are more guarded. Valuations in certain pockets of the market look rich, and we expect the coming wave of mega-IPOs to carry mixed implications at best. In inflation-adjusted terms, the IPOs currently in the pipeline collectively eclipse the entire class of 2000 - a sobering comparison. Treated purely as a liquidity event, that supply overhang has the potential to act as a headwind for the broader market. The anticipated volatility surrounding the U.S. midterm elections has further prompted us to trim equity exposure back to a neutral allocation on a temporary basis.

Currencies

Currency markets have lacked - and continue to lack - clear directional catalysts. As Middle East tensions gradually ease, the U.S. dollar is forfeiting its safe-haven premium. The narrowing interest rate differential relative to the Eurozone is an argument that is gaining increasing traction, and one that points to further dollar weakness ahead. The Japanese yen remained on the back foot as well; even the Bank of Japan's direct intervention fell short of catalyzing any durable recovery.

Summary

We will look to rebuild our yen position only once convincing momentum re-emerges. Our U.S. dollar exposure is being carried on an almost fully hedged basis.

Ethna-AKTIV

State: 02/06/2026

Key points at a glance

• Positive monthly performance of 4.45% (YtD: 6.62%)
• Bond allocation: 51%; Ø rating of A to A+
• Duration: 11.5 (core portfolio 10.1; overlay contribution: +1.4)
• Gross equity allocation: 30.3%; net equity allocation: 29.9%
• Currency risk: 7.2% (2.5% USD, 2.7% JPY, 1.7% KRW and 0.3% CHF)

Bonds: Focus on quality and long maturities

Only minor adjustments were made to the bond portfolio of the Ethna-AKTIV. In total, the 53 titles represent high quality and a long average maturity. We further express our conviction that interest rates may fall through derivatives on 30-year German government bonds, which extend the modified duration from 10.1 to 11.5. The majority of corporate bonds are denominated in euros, with only around 3.1% in US dollars. In addition to 12.8% in government bonds from European issuers, there is a cash allocation of 17.9%.

Equities: profits realised, flexibility increased

The fund’s current cash holdings are so high because, following the successful increase in the equity allocation at the start of the month, this move was more than reversed towards the end of the month. From a peak of over 44%, the allocation was reduced to 30.3% through sales of individual shares. Although the excellent earnings season and the associated outlook support our positive strategic view, we would like to adopt a somewhat more cautious approach in the coming weeks and months. Following the profit-taking, we can now use developments in the Iran conflict, the SpaceX IPO and the highly likely mid-term election volatility to evaluate new opportunities. The portfolio is currently relatively concentrated, comprising just 19 stocks.

Currencies: Yen exposure halved

Overall, the Ethna-AKTIV is invested 25.8% gross in US dollar-denominated equities and bonds. After hedging, the US dollar exposure stands at 2.5%, as we anticipate a longer-term weakening of the US dollar. Yen exposure has been reduced from 5.5% to 2.7%. Even the Bank of Japan’s intervention has so far failed to trigger a sustained price reaction. Until this occurs, we will remain cautious.

Ethna-DEFENSIV

State: 02/06/2026

Key points at a glance

• Positive monthly performance of 1.77% (YtD: 0.83%) in a month characterised by stabilising German government bond yields and credit tightening.
• Bond allocation virtually unchanged at 96.9%; cash allocation at 3.1%
• Modified duration: 9.8 (core portfolio 9.0; Buxl overlay contribution: +0.8)
• High-Yield allocation stable at 5.9%; low trading volume with two selective adjustments

Market: Easing at the long end of the EUR curve

The fund’s basic structure – quality-oriented, long-term, EUR-dominated – remained unchanged in May. The Buxl overlay (115 contracts, corresponding to +4.86% of the nominal value) maintains the synthetic duration at 9.83 and contributed positively to performance in May, as the long end of the EUR curve normalised following the tensions in April.

Strategy and portfolio: Consistency in quality and focus

The bond allocation rose slightly to 96.9%, spread across 98 positions. Trading volume remained low, with only minor adjustments overall and no strategic implications. The portfolio remains clearly focused on long-dated, EUR-denominated investment-grade (IG) bonds through its top holdings – in particular the EU bonds 2040 and 2039, the EDF Green Bond 2045, as well as JAB Holdings 2035 and EnBW 2036. The average rating remains solid in the A range; AAA-rated bonds account for 17.6% (up from 17.3% the previous month), whilst the BBB segment (BBB+ to BBB−) accounts for around 33%.

The High-Yield (HY) segment remained stable at 5.9% and is predominantly positioned in the BB range, reflecting the defensive-conservative orientation. There are currently no plans to increase the HY allocation.

Currency risk remains minimal, with a net dollar exposure of 1.7%; the portfolio remains over 98% euro-focused. The USD position is unhedged and serves as an opportunistic addition, without having a material impact. There are no plans to increase foreign currency exposure.

Liquidity remains at a low level of 3.6%, consistent with the mandate being almost fully invested. The Buxl overlay provides synthetic duration without tying up liquidity, thereby maintaining flexibility for opportunistic purchases – particularly relevant given the ongoing uncertainty surrounding Iran and the Strait of Hormuz, and the expected ECB rate hike decisions in June and September, which could trigger short-term volatility in both directions.

Ethna-DYNAMISCH

State: 02/06/2026

Key points at a glance

• Positive monthly performance of 5.73% (YtD: 11.33%)
• Gross equity allocation: 59.1%; no derivatives
• Bond allocation: 21.5%
• Currency risk: 7.7% (2.6% JPY, 2.8% CHF, 1.5% USD after hedging)

Equities: selectively concentrated, tactically flexible

The fund’s thematic approach continued to prove successful in May. In addition to targeted selection adjustments, the fund’s allocation was also dynamically adjusted. An increase in the allocation of more than 10% at the very start of the month was followed by a reduction of approximately 20% at the end of the month. As part of this reduction, we mainly divested high-beta stocks, which are now very highly valued. Following the profit-taking, we can now use developments in the Iran conflict, the SpaceX IPO and the highly likely mid-term election volatility to evaluate new opportunities. The portfolio is currently invested in 36 stocks, with six of the Magnificent 7 stocks accounting for 14.6% of the weighting alone.

Funds not invested in equities are held in short-term government bonds (21.5%) and cash.

Currencies: USD hedged, foreign currencies reduced

The Ethna-DYNAMISCH is invested 53.1% gross in US dollar-denominated equities. After hedging, the US dollar exposure stands at 1.6%, as we anticipate a longer-term weakening of the US dollar. Two other notable FX positions are 2.6% JPY and 2.8% CHF. Both positions have been reduced over the course of the month. 

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