Investing in
Corporate Bonds
What are corporate bonds?
Corporate bonds are securities. They are issued by companies so that they have more capital available. You can imagine it as follows: You give money to a company, in return the company promises to pay you back the money after a certain period of time. During this time, the company pays you interest, which is the profit you receive for lending the money. Companies can issue bonds for various reasons, for example to finance a major investment project, to expand business activities or to pay off short-term debts.
How a bond fund "works"
What is a bond fund and what types are there? What needs to be considered when investing? These questions are explained in the blog post.
How to invest in corporate bond funds
When companies need capital, they can issue a bond and raise money on the capital market. What does a corporate bond fund do? What should you bear in mind when investing in corporate bond funds?
Investing in corporate bonds
If you would like to invest in corporate bonds, you can invest in one of the following corporate bond funds. This allows you to invest your money not just in one bond, but in a large number of different companies. Please note that investing in securities involves risks as well as the opportunities described above.
- ERSTE RESPONSIBLE BOND EURO CORPORATE
- ERSTE BOND CORPORATE PLUS
- ERSTE BOND CORPORATE BB
ERSTE RESPONSIBLE BOND EURO CORPORATE
The fund invests in euro-denominated corporate bonds from sustainability-oriented companies with an investment-grade credit rating.
What does this credit rating mean? The creditworthiness of a company or a country can be seen from the rating of rating agencies such as Standard & Poor's (S&P). A distinction is made between the investment grade segment (rating AAA to BBB) and the non-investment grade or high-yield segment (rating BB to D).
Bonds from the investment grade segment have a lower default risk, but generally offer a lower interest rate than bonds from the high-yield universe.
What are sustainability-oriented companies? The focus is on investing in bonds from companies that are pioneers in terms of environmental, social and governance aspects. Special sustainability criteria and the ESGenius rating of Erste Asset Management are applied.
Please note that investing in securities entails risks in addition to the opportunities described above.
Sustainably oriented
corporate bonds
Sustainable asset accumulation
Investments are made in bonds from ecologically, morally and socially responsible companies.
Price gains
Price gains possible when interest rates fall.
Broad diversification
Risk diversification through broad diversification in bonds from a wide range of issuers.
Price fluctuations
The price of the fund can fluctuate significantly due to various influencing factors.
Deterioration in creditworthiness
Deteriorations in creditworthiness can lead to price falls.
Capital loss possible
Capital loss is a possible consequence.
ERSTE BOND CORPORATE PLUS
With ERSTE BOND CORPORATE PLUS, you invest in hybrid and subordinated bonds.
What does that mean? Hybrid bonds are similar to a company's equity and are considered subordinated corporate bonds. Due to the subordinated servicing of the bonds in the event of the company's bankruptcy, these bonds have a higher risk of default. At the same time, hybrid and subordinated bonds generally have a higher interest rate.
How are the risks taken into account? The special risks of hybrid and subordinated bonds are taken into account in the fund through the special investment approach. The focus is on bonds from the investment grade segment, i.e. bonds from companies with good to very good credit ratings. In addition, a medium interest rate risk is targeted (the longer the term of a bond, the more strongly its price reacts to interest rate changes on the market) and the currency risk is hedged.
Please note that investing in securities entails risks in addition to the opportunities described above.
Investment in subordinated bonds with currency hedging in euros
Exchange rate changes
No influence of exchange rates due to currency hedging.
Risk premiums
Interesting risk premiums compared to conventional bond classes.
Broad diversification
Broad diversification in the hybrid bond segment.
Price fluctuations
The price of the fund can fluctuate significantly due to various influencing factors.
Risk of loss
In the event of an issuer's insolvency, the risk of loss is higher than with senior bonds.
Capital loss possible
Capital loss is a possible consequence.
ERSTE BOND CORPORATE BB
The fund invests primarily in corporate bonds from international issuers with a "BB" rating.
What does this rating mean? When assessing the creditworthiness of companies or countries, the market relies on ratings from specialized rating agencies such as Standard & Poor's (S&P). In this case, the rating ranges from AAA (best) to D (worst).
A rating of BB is no longer in the top category, which ranges from AAA to BBB (also known as investment grade). From a rating of BB, a company or country is considered speculative. This area is called non-investment grade or high-yield. Bonds with a rating in the non-investment grade range therefore have a higher default risk, and investors are compensated for this with a higher interest rate.
Why the "BB" rating in particular? Many institutional investors can only invest in bonds from the investment grade universe. If a company's rating is downgraded and falls into the high-yield range, this is known as a "fallen angel". Institutional investors then often have to sell the company's bonds. Historically, this selling pressure often leads to lower prices and undervaluations in terms of risk.
On the other hand, companies also have strong incentives to move up into the investment grade segment. If they upgrade their rating, they can benefit from better access to the capital market and more favorable financing costs. Investors can benefit from lower risk premiums and associated price increases in the event of an upgrade. However, downgrades can lead to price declines and defaults.
Please note that an investment in securities also entails risks in addition to the opportunities described above.
Corporate bonds with an average rating of "BB" and currency hedging in euros
Exchange rate changes
No influence of exchange rates due to currency hedging.
Dividends
High annual dividends.
Broad diversification
Broad diversification in the high-yield bond segment.
Price fluctuations
The price of the fund can fluctuate significantly due to various influencing factors.
Deterioration in creditworthiness
Deteriorations in creditworthiness can lead to price falls.
Capital loss possible
Capital loss is a possible consequence of investing in the stock market.
More Information
Investing in bonds - the charm of short maturities
When should you invest your capital in the bond market? Which maturity would be favorable at the moment? These questions are not so easy to answer and depend, among other things, on the preferences of the respective investor.
Corporate
bonds - Why emerging markets are worth a look
Fund manager Thomas Oposich explains in an interview what makes investments in emerging market bonds interesting. He also reports on which sectors and companies he considers promising.
Investing in the bond market - about yield and spread
How do I select corporate bonds for my investment? Our expert Johann Griener provides an insight into yields in different credit rating segments. He also explains the spread that can be achieved.
Disclaimer
This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. All data is sourced from Erste Asset Management GmbH, unless indicated otherwise. Our languages of communication are German and English.
The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011.
The fund prospectus, Information for Investors pursuant to Art 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site www.erste-am.com within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.
The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.
Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.
Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.
The issue and redemption of unit certificates and the execution of payments to unit holders has been transferred to the Fund's custodian bank/depositary, Erste Group Bank AG, Am Belvedere 1, 1100 Vienna, Austria. Redemption requests can be submitted by investors to their custodian bank, which will forward them to the Custodian Bank/Depositary of the Fund for execution via the usual banking channels. All payments to investors are also processed via the usual banking clearing channel with the investor's custodian bank. In Germany, the issue and return prices of shares are published in electronic form on the web site www.erste-am.com (and also at www.fundinfo.com). Any other information for Shareholders is published in the Bundesanzeiger, Cologne.
Contact
Do you have questions or would like to get more information?
Your advisor at Erste Bank or Sparkasse is happy to help you.