Short-term bonds - more (value) than liquidity substitute

Portfolio Manager Felix Stern and Daniel Fuchs show the diverse options available in this segment, which sources of return exist, how to position and why it is important to also consider ESG risks in this segment when making investment decisions.

The negative interest rate environment will probably accompany us for around a decade in total. Current market expectations show that positive Euro money market interest rates are not to be expected before end of 2024. Even the current discussion as to whether the rise in the inflation rate is only temporary or whether a sustained higher price level increase will materialise has not changed the interest rate outlook so far. Following the change in strategy by the European Central Bank (ECB), it will in future tolerate a temporary overshooting of inflation above the target of 2%, which argues in favour of a lower key interest rate level in the Euro-zone for longer.
Many investors who hold liquidity in the medium term for strategic or regulatory reasons are therefore looking for alternatives and have increasingly turned to short-term bonds and fund investments in recent years. This group of investors accepts a higher risk compared to overnight or time deposits if this is rewarded by a higher expected performance. Multi-asset investors are also increasingly focusing on this market segment. The main argument here is the currently prevailing stronger synchronisation of equities and long-term bonds and the above-average duration risks without corresponding current income in defensive bond segments with longer residual maturities.

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Authors

Felix Stern

Felix Stern joined the Asset Management division of Berenberg in 2000 as a fixed income portfolio manager. Currently he is heading the fixed income selection team within the Asset Management and is responsible for institutional mandates. As a senior portfolio manager he is responsible for the selection of corporate and financial bonds as well as short-term bond market investments. He is also the lead manager for several of Berenbergs institutional mutual funds. Prior to joining Berenberg, he worked several years for the Market Research department of British American Tobacco, Germany. Felix is a CCrA - Certified Credit Analyst (DVFA) and also has a German Diploma in business economics from the Fernuniversität in Hagen.

Head of Fixed Income Euro Balanced
Daniel Fuchs

Daniel Fuchs, FRM, joined Berenberg in 2009. Within the fixed income selection team he is specialized for the selection of government and corporate bonds. He has more than 12 years experience with fixed income and equity strategies for portfolio management. Previously, he worked at Steubing Derivatives Brokerage and Independent Derivatives Consulting AG in 2005, where he was responsible for trading and portfolio management of structured products. Daniel has a master’s degree in economics with focus on statistics/econometrics and international financial markets from the University of Constance. He is a certified EUREX trader and Financial Risk Manager (FRM).

Portfolio Manager Fixed Income

Suitable investment solutions

Multi Asset

Actively managed, broadly diversified, short-term fixed-income funds.

Fundname
ISIN | WKN:
Performance
1 year
Volatility
1 year
NAV

Berenberg Euro Enhanced Liquidity R D

DE000A2H7PG5 | A2H7PG
Date: 28.09.2022
ISIN: DE000A2H7PG5
WKN: A2H7PG
Performance 1 year: -4.54%
Volatility 1 year: 1.03%
NAV: 93.60 EUR

Berenberg Euro Floating Rate Notes SGB R D

LU0321158700 | A0M5AB
Date: 28.09.2022
ISIN: LU0321158700
WKN: A0M5AB
Performance 1 year: -0.99%
Volatility 1 year: 0.12%
NAV: 90.26 EUR