New maturity fund: Secure attractive bond yields now!

After many years of ultra-low capital market interest rates, the bond markets are currently offering comparatively good yields – even for relatively safe bonds with short and medium maturities. But for how much longer? Continued interest rate cuts by the European Central Bank (ECB) and the US Federal Reserve (Fed) seem to be on the cards. The new maturity fund, Raiffeisen-Mehrwert-2027 III, is taking advantage of the current attractive yield environment.

Why invest in a maturity fund now?

The ECB began a new cycle of interest rate cuts in the summer, the Fed started its cycle a few days ago. In both, the US and the eurozone, one or two further interest rate cuts are likely this year, as well as further interest rate cuts in the coming year. On both sides of the Atlantic, monetary policy is currently very restrictive and is therefore slowing down the economy. In Europe in particular, lower key interest rates have long been necessary due to the weak economy. However, the ECB's mandate is exclusively to combat inflation. And because inflation is only falling (too) slowly to the ECB's target value, the European monetary authorities are not yet able or willing to lower interest rates any faster or more sharply. This is likely to change in the coming year at the latest, as inflation rates could then be low enough to give the central bank a free hand.

Falling interest rates seem to be on the cards

Experience shows that these interest rate cuts will also bring down yields on the euro bond markets. To what extent and how quickly is only partially predictable. It is highly likely that yields on short and medium maturities will fall more sharply than those on long maturities. Anyone wishing to secure the current interest rate levels for the next few years should therefore act quickly.

More on the bond markets

Secure current yield level

This is precisely where Raiffeisen KAG's new bond maturity fund with its approximately three-year term comes into play. It enables investors to secure current market yields for the next three years. Of course, the fund is not comparable to a savings book – the fund assets are subject to fluctuations in bond market prices and the risks of the capital markets during the term. However, the fund is designed to minimise risks as far as possible. Its focus is on security.

Despite its strongly security-orientated investment concept, Raiffeisen-Mehrwert 2027 III should also be able to achieve quite attractive returns. The current yield of the fund portfolio is approximately 3.67%. The actual value may be higher or lower when the fund is launched, depending on capital market developments up to that point. It should be noted that this portfolio return is not the same as the investment return to be achieved. On the one hand, any fees and administration costs must of course be deducted. And on the other hand, developments on the financial markets and the issuers of the bonds also influence the return, albeit to a lesser extent than with bond funds without a fixed maturity limit.

Security-orientated investment concept

Safety before maximising returns – the entire structure of the fund is based on this principle. The fund assets will consist of 80% corporate bonds from issuers with good and very good credit ratings (investment grade) and of 20% carefully selected bonds from issuers with lower credit ratings (high yield). This allocation is intended to ensure the best possible risk/return ratio. The fund assets are also broadly diversified across a large number of issuers and sectors, resulting in a very low weighting of individual issuers. This means that if, contrary to expectations and despite the careful bond selection process, a bond defaults (i.e. not be repaid in full on time together with all interest coupons), the effect on the fund assets as a whole would be very small. This diversified portfolio can generate an attractive, relatively predictable return over the next few years.

Concept of the maturity fund Raiffeisen-Mehrwert 2027 III

Please note that an additional, market-dependent fee is charged for purchases during the term of the fund. This flows directly into the fund assets and serves to protect existing investors. This is necessary because the fund must first invest this money in further bonds in the event of subsequent purchases. It may only be possible to purchase these bonds at significantly lower interest rates. This would also affect the average return of all investors who have already invested. The fee is intended to offset this effect for existing investors.

Corporate bonds with yield advantages

But why does the fund invest in corporate bonds at all and not in even safer government bonds, some may ask?

Because the yield disadvantage of government bonds from core eurozone countries is simply too great. In other words, the additional return on corporate bonds is well worth the slightly higher risks. All the more, if the risks can be significantly reduced through good diversification and a focus on issuers with strong credit ratings. The fundamental situation of most companies can still be described as solid, and the refinancing environment is good. Default rates for corporate bonds are currently at a moderate level and are even expected to fall slightly over the next 12 months according to estimates by the major rating agencies.

Many years of successful fund management

Nevertheless, corporate bonds are not free of ber risk. In the event of a very severe or very long recession, for example, or in the event of major financial market turbulence or economic shocks, price falls and possibly even capital losses are to be expected. However, such a scenario is currently not in sight. Nevertheless, it is impossible to predict what may happen in the next three years. In this context, the fund relies on the expertise of Raiffeisen KAG's experienced bond fund management team, which has been successful for decades and has a very successful track record, particularly in bond selection. Of course, past results are not an reliable indicator for the future. However, they certainly provide an extremely solid basis.

Term limitation for additional security

The advantage of a fund with a clearly limited term compared to a bond fund without such a limit is also important in this context: As long as investors keep the fund until maturity and the bonds are repaid punctually and in full by the issuers, any interim price falls and price fluctuations are largely insignificant for the return ultimately achieved. Nevertheless, there are certain uncertainties in this context, for example in the case of bonds in the fund portfolio that mature before the end of the fund's term. The capital repaid by these issuers needs to be reinvested. The yields that can then be achieved may be higher or lower than at present. Overall, however, this influencing factor is of relatively minor importance for the total return.

Sustainability as a must

Raiffeisen-Mehrwert 2027 III only invests in bonds from companies, categorised as sustainable according to ESG criteria by using a sustainability concept that has been tried and tested for many years. Read more in our sustainability policies.

Although this may reduce the available investment universe somewhat, the focus on ESG also means that a number of riskier issuers are excluded from the selection, particularly in the high-yield segment. Although this means sacrificing one or two basis points of potential return (1 basis point = 0.01%), it is in line with the fund's security-oriented strategy.

The investment strategy of Raiffeisen Added Valued 2027 III allows for investment predominantly in demand deposits or callable deposits during the final six months of the term.