Portfolio Manager Update

Market view

State: 01/09/2025

The latest earnings season is in the books, and the takeaway is clear: a lot of companies on both sides of the Atlantic are still sitting on rock-solid foundations. In the U.S., roughly seven out of ten corporates beat on earnings, and over three-quarters surprised on the top line. Europe painted a softer picture — 53% EPS beats and only 37% on revenues — but globally, the economy is proving remarkably resilient.

That said, C-suites are keeping their cards close to the vest. The main overhang: lingering uncertainty around fresh tariff deals. The biggest trade war risks may be off the table, but the ink isn’t dry yet. Markets, however, are already pricing a best-case scenario with gusto. Global equity indices are hugging all-time highs, and credit spreads are sitting at historic tights.

One encouraging development: sector rotation kicked in over the month, broadening market participation — a healthy sign if the bull market wants to keep running, even with valuations stretched to the ceiling.

With NVIDIA closing the earnings season curtain, focus shifts back to the macro tape. Recent PMIs hint at a modest rebound, but our base case is slightly softer growth paired with moderately hotter inflation in the coming quarters. Long-term inflation expectations remain well-anchored. Unless trade tensions flare up again, tariffs should play out more like a one-off tax than a persistent inflation driver. Who ultimately eats the cost — corporates or consumers — will become clearer over the next few months.

All eyes were on Powell in Jackson Hole. Just two days after the Fed minutes flagged inflation risks, the Chair pivoted — leaning on sharply revised-down labor data and signaling a dovish reset in policy stance. A September rate cut now looks like a done deal.

Still, the Fed isn’t out of the political crosshairs. The White House continues to jawbone the central bank, stoking concerns about independence — compounded by chatter over a potential exit of FOMC voter Lisa Cook.

Bottom line: markets are still climbing the Wall of Worry. Progress on Ukraine talks, policy support on both fiscal and monetary fronts, and ongoing deregulation provide tailwinds. Into year-end, we expect equities to push higher and yields to drift lower.

Ethna-DEFENSIV

State: 01/09/2025

Key points at a glance

• Solid performance: The fund delivered a positive return of +0.16% in August, driven by tighter credit spreads despite slightly higher sovereign yields.
• Active repositioning: We increased our allocation to high yield bonds to 11.2% to capture attractive carry, while trimming the portfolio’s modified duration slightly to 6.5.
• Focus on yield opportunities: Continued strong demand for bonds provided valuation support.

Bond strategy

In August we continued to actively reposition the portfolio to seize opportunities in a volatile market environment. A key focus was the targeted increase in high yield exposure, which offered more attractive yields relative to other segments. High yield now accounts for 11.2% of the portfolio.

Within investment grade, we executed selective purchases in the intermediate maturity bucket, while realizing gains and managing risk by trimming longer- and shorter-dated positions. These shifts resulted in a modest reduction of the modified duration to 6.5.

Market Environment

Markets digested mixed signals from the U.S. economy: higher inflation prints (particularly PPI) combined with weak labor market data fueled stagflation concerns. Nevertheless, bond markets proved resilient. Investors continued to price Fed rate cuts, with the spotlight firmly on central bank commentary at the Jackson Hole Symposium.

In the euro area, inflation data aligned with expectations and remained within the ECB’s target band, giving policymakers room to stay patient. Demand for European corporate bonds remained robust, compressing credit spreads further — a key driver behind the fund’s +0.16% monthly performance.

Performance YTD

Year-to-date performance for Ethna-DEFENSIV stands at +2.66%.

Ethna-AKTIV

State: 01/09/2025

Key points at a glance

• Performance: The fund gained +0.13% in August.
• Fixed income allocation: Unchanged at 62.7%, with an average rating of A– to A.
• Modified duration: 7.6, no overlay currently in place.
• Equity allocation: Increased during the month from 25.8% to 32.1% net exposure.
• FX exposure: Portfolio currency risk currently at 3.3% (2.9% USD, 0.4% CHF).

Equity strategy

Our cautious reduction in equity exposure last month proved unnecessary in hindsight. Progress in Ukraine peace talks, mostly positive earnings surprises, and clear expectations for further Fed rate cuts quickly erased the early-month labor market shock. Accordingly, we raised our net equity exposure to 32.1% and scaled back our underweight in technology.

With deregulation, supportive fiscal policy, and accommodative monetary policy providing tailwinds, we remain strategically constructive on equities. We are mindful that U.S. indices are trading at valuations near historic peaks - yet valuation alone has never been a reliable short-term timing tool.

The portfolio is currently comprised of 35 single-stock positions. We maintain conviction in financials while deliberately holding below-average exposure to the FANG names.

Bond strategy

Despite historically tight credit spreads, we continue to find value in high-quality bonds with longer maturities. Against the backdrop of stable economic conditions and a bias toward lower yields, this positioning allows us to capture attractive coupons while participating in potential price gains.

The portfolio currently holds 13.3% sovereign bonds and 49.4% corporate bonds, with only minor adjustments made in August. Modified duration remains at 7.6, above the long-term average, with no additional overlay in place.

The portfolio’s yield stands at 4.3%, reflecting both quality and maturity profile. Even amid intense competition in new issuance, we refuse to compromise on credit quality.

Currency strategy

We remain strategically underweight the U.S. dollar. Beyond the narrowing rate differential, trade tensions and rising political pressure on Fed independence are headwinds for the greenback. Our USD exposure has been cut back to a residual 2.9%. The only other non-EUR exposure is a 0.4% allocation in Swiss francs.

Ethna-DYNAMISCH

State: 01/09/2025

Key points at a glance

• Performance: The fund lost –1.16% in August.
• Equity allocation: Net equity exposure increased from 71.6% to 78.9% over the course of the month.
• Fixed income & liquidity: Currently 12.3% of the fund is invested in short-duration, high-quality bonds; cash holdings stand at 9%.

Equity strategy

The bond allocation remained broadly unchanged. 12.3% is invested in short-dated, high-quality securities, serving as both a stabilizer and a liquidity pool for opportunistic equity purchases. In August, equity additions were funded entirely out of available cash.

Bond strategy

There have been no significant changes to the bond portfolio. 10.5% is invested in short-dated, high-quality titles, which – together with a cash position of 18.8% – serve as a stabiliser and liquidity pool for opportunistic purchases on the equity side.

Currency strategy

We continue to leave most FX exposures unhedged, with the exception of the U.S. dollar. Each currency exposure typically represents only a low single-digit share of the portfolio.

The dollar remains strategically underweighted. Pressure from narrowing rate differentials, ongoing trade disputes, and mounting doubts about Fed independence weigh on the greenback. We maintain our underweight stance and have hedged USD exposure down to 16.8%.

.