Longer maturities for bonds
The central banks' interest rate hikes are coming to an end. It is therefore time to secure higher bond yields. This is why the duration of the bonds in Gutmann's asset management portfolio has been increased to 5 years.
The developments on the bond markets over the past two years have been unique and will go down in history. Until spring 2022, investors had to live without interest or even with negative interest rates for an extended period. Last year saw the start of a unique normalization of the interest rate environment. It was as if the central banks wanted to quickly seize the opportunity to say goodbye to the negative interest rate experiment. Currently, the European Central Bank's (ECB) deposit rates are back at 4% and the US Federal Reserve's target range is 5.25% to 5.50%. The interest rate hikes are now having an impact on the real economy and the US inflation rate fell more sharply than expected last October.
Clemens Hansmann, head of the bond team at Gutmann KAG: “We assume that there will be no more interest rate hikes in the eurozone for the foreseeable future.”
We expect bond yields to fall and thus performance potential for bond prices.
Although a further setback can never be ruled out, the risk/return ratio for fixed-interest securities is now more favorable than it has been for a very long time.
We want to benefit from higher interest income for longer and have therefore increased the duration of our portfolio management accounts and investment funds. The duration reflects how long the capital is tied up. At the beginning of 2022, this was still a good 3 years, but is now 5 years for both EUR and USD portfolios.
However, duration is also a sensitivity indicator. As a rule of thumb, the higher the figure, the greater the change in the price of a bond when interest rates change. This higher duration gives more weight to the bond component within a mixed portfolio. If there is a crisis-like sell-off of equities, quality bonds are in demand. These are precisely the securities that we hold in the Gutmann bond strategy! These should then perform particularly well and cushion share price declines.
Following the recent rise in bond prices, the average return on the Gutmann bond strategy is 4.3%. This return is higher than in the past 15 years and makes us optimistic about the future. (Note: Past performance or forecasts are not reliable indicators of future results.)
Please contact your client relationship manager if you have any questions about this or would like to discuss your individual investments.