Ethenea: where to invest?
When is the right time to increase the duration of a bond portfolio? Where to invest in equities: the US or Europe? And does the current turbulence in China offer investment opportunities? Ethenea’s portfolio managers discuss the current positioning of the Ethna funds.
"We are close to reaching the peak in interest rates, but it is not impossible that the central banks in the US and Europe will raise interest rates again," says Volker Schmidt, Portfolio Manager of the Ethna-DEFENSIV fund. Consequently, he is carefully managing the duration of the fund’s bond portfolio. “We have recently established a strategic long position in Bond futures and extended the duration to 4. Meanwhile, as the pendulum is swinging upwards in Europe, being driven by stubborn inflation and a possible further rate hike by the ECB, we have closed the futures position and reduced the duration. The portfolio duration in Ethna-DEFENSIV is currently 3.1. Despite recent tactical adjustments to our duration profile, our strategic outlook remains unchanged as we still expect slightly higher returns at the long end of the curve, especially in Europe. In the US, the situation is more complex, with significantly lower inflation and more robust economic growth. Even Fed Chairman Powell has stated that the central bank's task is not yet complete and that a renewed acceleration in economic activity may compel the Fed to further raise rates. Therefore, we will increase portfolio duration if we see stronger signs of weaker economic performance and slowing inflation, but for now we think such a move is premature.”
US or European equities?
Regarding equities, Michael Blümke, Portfolio Manager of the Ethna-AKTIV fund, concentrates on the US market, pointing out that the world's most prosperous companies have emerged from this huge domestic market with a high level of innovation. “Many of them have become global leaders and operate in sectors that should continue to benefit from structural growth trends.”
“In principle, we seek comparable company attributes in the Ethna-DYNAMISCH fund,” says Portfolio Manager Christian Schmitt. “However, we are somewhat more flexible in terms of market capitalisation preference and geographical focus. As a result, we also invest in European stocks that are smaller on average, but also in market leaders. The preference for geographic selection is still determined on a case-by-case basis. On both sides of the Atlantic, there remain attractive prospects; however, the number of US companies on our watch list is significantly higher.”
Many of the stocks in the portfolio of Ethna-DYNAMISCH are focused on technologies, pharmaceuticals and consumer sectors. These areas benefit from structural developments such as digitalisation, demographical changes and wealth growth. Christian Schmitt notes, “We tend to steer clear of sectors with no structural growth or with excessive cyclicality. However, we do occasionally make tactical moves when there are significant divergences between price and fundamentals.” This has been the case in the past, for instance, with European banks. As we do not currently observe any persuasive or tradable divergences in these tactical sectors, we persist in favouring the structural growth sectors of technology, pharmaceuticals and consumer staples.
China: only tactical positions
Strategically, Michael Blümke, Portfolio Manager of the Ethna-AKTIV, rules out an investment in China. “Mainly because of the political uncertainty, but also because the long-term growth story is no longer right for us. However, the Chinese government has already implemented several stimulus measures in response to current challenges, resulting in potential short-term opportunities. Therefore, we intentionally adopt a tactical approach, potentially investing up to 5% through an index investment.”
