Portfolio Manager Update

To the latest Market Commentary

Market view

State: 31.05.2025

Despite – or perhaps precisely because of – the ongoing uncertainty and high scepticism, the markets continued the risk-on rally that began in the previous month. Some of the major stock indices are now trading well above the levels seen before the escalation of the tariff dispute on Liberation Day.

Against the backdrop of considerable uncertainty, this seems contradictory. After all, the global economy is facing massive changes in trade policy. However, it is not unusual for fundamentals to lag behind price movements.

On a positive note, even the dispute between the US and China has eased significantly and tariffs have been reduced.

In the US, there has been a clear shift in perspective on two levels. On the one hand, the US government has moved from an uncompromising tariff policy to one that is open to negotiation. On the other hand, it no longer intends to tackle its own debt problem with politically unpopular deficit reduction measures, but rather through higher economic growth. In our view, long-term US interest rates are contributing significantly to this change of direction because, unlike European interest rates, they are continuing to rise.

Added to this is the persistent discrepancy between so-called hard and soft data. However, there is still a good chance that the delayed ‘hard’ economic data will not follow the rather poor forecast picture painted by the ‘soft’ survey data.

The US Federal Reserve has clearly come to a similar conclusion. Unlike its European counterpart, however, the Fed has postponed its next interest rate cut. Even the ECB is likely to adopt an observational approach for the time being after another interest rate cut in June.

Ethna-DEFENSIV

State: 31.05.2025

Key points at a glance

• Extension of the bond portfolio's duration: Targeted purchase of new issues (5-8 years) for attractive risk/return profiles and better entry opportunities.
• Higher long-term yields with stable inflation and robust issuers appear attractive.
• Duration overlay halved: reduction in the Bund overlay contribution, duration contribution from overlay fell from 0.9 to around 0.4.

Bond strategy

In the previous month, we actively extended the maturities in our bond portfolio. We purchased new issues with maturities of 5–8 years as these offered an attractive balance of risk and return.

Access to these new issues presented advantageous entry opportunities that are often unavailable to individual investors. At the same time, we sold off shorter-term positions (1–4 years).

These changes led to an increase in the portfolio's modified duration from 5.7 to 6.6. We believe that the higher yields currently available on longer maturities represent an attractive investment opportunity.

The outlook for inflation appears stable, which should ease the pressure on government bond yields. Additionally, the robust business models of the issuers in our portfolio make a significant widening of credit spreads unlikely.

To counteract the increase in portfolio duration, we halved our duration overlay on Bund futures simultaneously. This reduced the overlay's contribution to the overall duration from 0.9 to approximately 0.4.
Consequently, the overall portfolio duration was approximately 7 at the end of the month. Performance since the beginning of the year stands at around 1.74%.

Ethna-AKTIV

State: 31.05.2025

Key points at a glance

• The Ethna-AKTIV (T) gained 3.04% in May.
• The bond allocation remained almost unchanged at 50.5%. The average rating is A- to A.
• A long position in Bund futures increased the modified duration from 7.3 to 9.
• The net equity allocation increased from 30.7% to over 44% during the month before reducing back to 33.3% towards the end of the month through both futures and equity sales.
• The portfolio's currency risk currently stands at 10.9% (5.5% GBP, 0.7% USD, 2.6% JPY and 2.1% CHF).

Equity strategy

During the sustained rally, net exposure was raised very quicly from just under 30% to over 44%. Towards the end of the month, however, it was reduced again, this time to 33.3%. Unlike the previous month, the gross ratio fell to 29.2%.

In addition to NVIDIA, which grew in weight to 4.5% due to price gains, smaller, high-beta technology stocks were mainly sold. Only three Mag7 stocks are represented in the portfolio (Alphabet, Microsoft and NVIDIA), accounting for 6.8% together.

We currently see attractive potential in financial stocks and luxury goods providers. The single-stock portfolio remains heavily weighted towards the US and is supplemented with index exposure in the Eurostoxx 50 (4.9%) and Topix (2.6%).

Looking ahead, we anticipate a broad trading range in the market. We therefore consider it sensible to opportunistically build up and reduce exposure at the margins.

Our motto for the time being is 'buy the dip' and 'sell the rally' to a moderate extent, based on the fundamentals of a solid portfolio.

Bond strategy

The allocation to US bonds was reduced by a further 7% in favour of European securities. As a result, the bond allocation fell slightly from 51.3% to 50.5%. The modified duration of the portfolio is 7.3 and is increased to 9 via the duration overlay.

We continue to expect interest rates to fall in Europe. Easing inflationary pressure and modest economic growth are the main arguments in favour of this view.

We switched from US interest rate futures to Bund futures last month. The opposite movement of interest rates on both sides of the Atlantic once again justifies this move.

In our view, it is not attractive to take on more risk now that credit spreads have converged again and are close to historic lows.

Currency strategy

We are sticking to our guns: we are reducing US dollar risk by selling US equities and bonds on the one hand and hedging the remaining exposure on the other.

We are not alone in this view, which will continue to weigh on the dollar in the near term. Diversified positions in the pound (5.5%), yen (2.6%) and Swiss franc (2.1%) remain unchanged.

Ethna-DYNAMISCH

State: 31.05.2025

Key points at a glance

• The Ethna-DYNAMISCH (T) fund gained 2.35% in May.
• The net equity allocation increased from around 60% to 70% over the course of the month before falling back to 61.9% at the end of the month due to the sale of equities.
• A long-planned dynamisation of the product is currently taking place through the replacement of some equities.
• Approximately 23.1% of the fund is currently held in cash-equivalent bonds. The cash ratio is currently 14.2%. This sum will be reduced back to 30% in the near future through share purchases.

Equity strategy

There are two changes worth noting. First, the 10% hedge was unwound relatively quickly. This turned out to be the right move given the easing of trade tensions.

Second, the underlying equity portfolio was dynamised as planned. Replacing a number of stocks has resulted in a refocus on companies with stronger growth.

This process will be completed by the end of June. By the end of the month, the gross allocation stood at 61.9%. However, this will be increased relatively quickly to at least 70% through additional purchases.

The net ratio will continue to be managed via index futures. It currently stands at 61.9% as we are exercising caution due to the rapid upward movement and ongoing macroeconomic risks.

Bond strategy

Adjustments to the equity portfolio have freed up capital, which has been invested in short-term German government bonds. Consequently, the bond portfolio has grown to 23.1%.

The short maturity of the bonds and the issuers (KfW, EIB and the German government) guarantee that this portfolio is highly liquid and virtually free of default risk.

Alongside the 14% cash ratio, this ensures that future equity purchases can be made immediately.

Currency strategy

We are sticking to our strategy of not hedging currency risks except for the US dollar. As a rule, the amounts involved are low single-digit percentages per currency pair.

The situation is different for the US dollar. The invested exposure here is over 35% and is hedged at a level of 15%. We assume that the greenback's weak phase is not yet over.

The repatriation of foreign capital investments from the US and, not least, the US government's talk of its own currency's weakness should continue to provide headwinds for the US dollar.