Strategic Income Fund – Update

This year was again a good year for equity investments and one should guess that investors are jubilating. The upword trend has not been a smooth one. S&P 500 Index showed corrections between 4 % and 7 %. Many investors are not or only partly invested. Only few investors participated from the whole YtD move. Too many uncertainties draw attention to caution. Investors sentiment is still negative, therefore we do not expect to see an enduring correction.

Interest rates in Europe were lowered again and yields for bonds up to more than 10 years maturity are negative. We are paying money for giving loans to bond issuers. In the US money market yields are at 1,75 % and the yield curve is invers what could be a sign for a coming recession.

While the analysts estimates for company figures were reduced based on lower growth rates for the economy, the same analysts were surprised from better than estimated results for the 3rd quarter just lately. We expect further positive returns for the rest of the year.

The extreme low interest environment and the positive outlook for stock markets could force investors to increase their risk appetite also for fixed income investments, what should lead to more investments in High Yield Bonds. Since June this sector has plateaued and the prospect of higher equity prices could give them a price boost as well. We are planning to increase this part of the portfolio and reduce the more conservative part, which would accelerate the return of our Strategic Income Fund.

The Plus YtD of 3.06% for our USD I share class is satisfying in such an environment. We expect a further acceleration by end of the year and we are still positive for the coming year. The EUR share classes are showing lower yields because of hedging costs, which eliminate the currency risk.