Rising rates: a short-term investment opportunity?
Following an extended period of falling interest rates (to very low levels), the first signs of an increase are now apparent. This may be the ideal time to add the EB Short-Term Bonds fund to your portfolio.
The markets had been waiting for this moment for a long time: international interest rates are rising again. This was also noted by Wim Vermeir, AG Insurance Chief Investment Officer: “The situation has been normalising somewhat, thanks to the gradual reduction in the ECB’s quantitative easing programme and the moderate economic recovery under way”.
“The gradual increase in interest rates should continue, potentially with a few disruptions. However, we shouldn’t expect any significant increases”, explained Wim Vermeir in the interview for this newsletter. Nevertheless, investing in short-term funds is becoming more attractive.
Investing in the EB Short-Term Bonds fund
As its name indicates, the EB Short-Term Bonds fund includes shorter term bonds of less than three years. This short term is important because:
Returns are generally lower than with long-term bond funds. However, with rising interest rates, the shorter maturity enables quicker investments in bonds with a higher interest rate.
- A rising interest rate generally means that the value of bonds decreases, and vice versa. However, interest rate sensitivity is not identical for all bonds: short-term bonds have less value than bonds with a longer term maturity.
In the event of an (expected) increase in interest rates (OLO), the fund can, therefore, be an interesting addition to a portfolio.
Fixed asset allocation
For fixed asset allocation funds, the allocation between the different asset classes doesn’t change. This means that investors know the ratio between the different asset classes at all times and, therefore, the amount invested in a given asset class.
The EB Short-Term Bonds fund is a pure bond fund (100%). The main difference with our other bond funds is that the average maturity of the securities in the fund is shorter than for other funds: three years instead of six years, on average.
the fund is under active management. The fund managers are always looking for investments and risks which offer the best possible opportunities;
the fund is managed in the typical AG Employee Benefits style:
- using a diversified, multi-manager approach
- … which always favours the best managers…
- … to ensure a stable return.
Of course, your sales contact is also at your disposal for any questions.