Portfolio Manager Update

Market view

State: 05/11/2025

Global stock markets are racing from one all-time high to the next. Now that the Chinese have agreed a deal — or a truce — with the Americans, concerns about tariffs have completely faded into the background. The focus is now on monetary and fiscal policy, and their impact on consumer behaviour, corporate investment and profit dynamics.

Firstly, it should be noted that fiscal policy remains supportive. The issue of ongoing budget deficits and the resulting mounting debt is currently being postponed for the time being. The prevailing narrative is that in particular the US can grow its way out of this dilemma. Against this backdrop, we expect growth in 2026 to exceed current consensus estimates,

Secondly, with the exception of the Bank of Japan, central banks are continuing their easing cycle. In this context, it is important to remember that we are currently experiencing a cycle of interest rate cuts similar to those seen during periods of major economic stress, such as after the dot-com bubble burst or the 2008 financial crisis. As we are not currently experiencing an acute crisis, this is providing enormous tailwinds for the economy and the capital markets.

Therefore, talking about a bubble is completely pointless. Of course, valuations are high, but growth rates are too. Whether or not this is actually a bubble can only be determined in hindsight. In the current phase, it is important to think strategically, diversify broadly, and critically examine trends. As active multi-asset managers, we are ideally positioned to do this.

We do not believe that the insolvency of the automotive supplier First Brands marks the beginning of a series of wider credit defaults. However, it is a further indication that off-balance-sheet financing must be incorporated into credit analysis. We therefore continue to expect an attractive investment environment, in which holding both longer-term bonds from good companies and high equity exposure in the portfolio is appropriate.

Ethna-DEFENSIV

State: 05/11/2025

Key points at a glance

• Market developments: Credit markets remain robust, supported by positive results from the reporting season, easing trade tensions between the US and China, and positive overall market sentiment.
• Central bank activity: As expected, the US Federal Reserve cut its key interest rate by a further 25 basis points. Meanwhile, the ECB left its interest rate unchanged at 2%, maintaining a wait-and-see stance.
• Interest rate-driven rally and duration effect: The increase was mainly due to the higher modified duration (6.83 → 7.69) and the resulting gains from the decline in interest rates.
• Strategic focus: Focus on adding government bonds with higher durations and attractive coupons.

Market development

Despite risks in the US private credit sector, credit markets remain robust. The reporting season yielded some positive surprises, while the easing of trade tensions between the US and China provided further support for the credit markets and bolstered the generally positive market sentiment.

The monetary policies of the major central banks were divided during the reporting period. The US Federal Reserve acted in line with market expectations, continuing its easing course by lowering its key interest rate by a further 25 basis points.
By contrast, the European Central Bank (ECB) adopted a much more cautious approach, deciding to leave its key interest rate unchanged at 2%, thereby signalling a wait-and-see attitude. These diverging signals from the leading central banks were a key factor in influencing interest rate markets during the period under review.

Strategy and portfolio adjustments

October was an extremely successful month for the fund, with its strategic focus on falling interest rates paying off fully. To optimally position the portfolio for further interest rate easing, we aggressively increased the modified duration from 6.83 to 7.69.
This was the main driver of the month's positive performance.

In addition, we realigned our risk focus slightly during the month, reducing active credit risk in favour of interest rate risk. This was reflected in a targeted reduction in higher-risk, high-yield positions (e.g. Eutelsat and CoreWeave).
Consequently, the high-yield allocation decreased slightly from approximately 11% to 10%. Some investment-grade securities (Neste Oyj and Criteria Caixa) were also reallocated.

Ethna-AKTIV

State: 05/11/2025

Key points at a glance

• The Ethna-AKTIV gained 1.9% in October, generating 7.8% YTD.
• The bond allocation was reduced by 2.7% to 54.6%. The average rating is A- to A.
• Modified duration was increased further from 8.5 to 9.6. Currently, there is no overlay.
• The net equity allocation was increased by 6.2% to 42.3% over the course of the month.
• The portfolio’s currency risk currently stands at 22.9% (20.2% USD and 2.7% CHF).

Equity strategy

Considering the ongoing equity rally, we have abandoned our somewhat tactically oriented restraint. An initial, correspondingly small, short position of ~1.1% was quickly closed, and gros exposure increased by a further 5.1%.
The underweighting of FANG stocks has been reduced but remains in place. It is worth mentioning that we now have 6% European stocks in the portfolio, given the otherwise US focus. The number of individual stocks was reduced by two to 38.

We expect that the acceleration of economic growth – which we anticipate – will lead to a continuation of the bull market in 2026. Experience shows that next year’s midterm elections in the US will lead to volatility.

Bond strategy

Two notable adjustments were made to the bond portfolio. Firstly, around 10% of the portfolio was shifted from corporate bonds to government bonds. Secondly, the average maturity was increased further.
The modified duration of the portfolio is now 9.6. This completes the maturity extension that we deemed appropriate. Given our expectation that interest rates will remain constant or even fall, this positioning will enable us to achieve attractive returns and potential price gains.
We continue to hold French (5.1%) and Spanish (4.9%) government bonds.

The portfolio comprises 22.4% government bonds and 32.2% corporate bonds. The average rating remains at A to A+, and there is currently no additional duration overlay. Given its current quality and maturity, the portfolio is yielding 4.1%.

Currency strategy

Hedging the US dollar for most of the year has proven successful. However, we expect the dollar to strengthen in the short term and have therefore raised the allocation further from 15% to 20%. The long-term drivers of dollar weakness remain in place. In the short term, however, we believe that many of these factors have already been priced in and that higher growth in the US, in particular, as well as the calmer trade situation, will lead to a counter-movement.

Ethna-DYNAMISCH

State: 05/11/2025

Key points at a glance

• The Ethna-DYNAMISCH (T) gained 2.79% in October, generating a YTD return of 9.66%.
• The net equity quota increased by 3.7% to 83.6% over the course of the month.
• 9% of the fund is currently held in cash-like bonds. The cash portion of the portfolio currently stands at 6.3%.
• The portfolio's currency risk currently stands at 30%, 23.7% of which is in USD.

Equity strategy

The composition of the Ethna-DYNAMISCH fund proved successful last month. In light of the ongoing stock rally, we abandoned our more tactically oriented restraint and increased the net quota from 79.9% to 83.6%.
As part of this increase, we added back in the technology exposure that had previously been reduced. Approximately 35% of the portfolio can be broadly classified as belonging to the AI universe, either because the companies are software or hardware providers, or because their business models fundamentally benefit from AI.
The number of stocks was reduced from 56 to 49.

Bond strategy

There were no changes to the bond portfolio. 10.9% of the portfolio is invested in high-quality, short-term bonds. Along with a cash ratio of 6.3%, these form a stabiliser and liquidity pool for opportunistic equity purchases.
The increase in the equity ratio was achieved by utilising existing cash positions.

Currency strategy

We continue to avoid hedging currency risks, except for the dollar. For each currency pair, this typically equates to a low single-digit percentage.

Hedging the US dollar for most of the year has been successful. However, we expect the dollar to strengthen in the short term, which is why we have increased the allocation from 20% to 23.7%. The long-term drivers of dollar weakness remain in place. In the short term, however, we believe that many of these factors have already been priced in and that higher growth in the US, in particular, as well as the calmer trade situation, will lead to a reversal of this trend.

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