A note to investors

Dear investors,

Our role is to manage with maximum professionalism and prudence the assets you have entrusted to us and that is what we do. We are aware that the times we live in, respectively the epidemic we are facing and its economic consequences have an unprecedented character and we cannot ignore that they have also left their mark on the evolutions of asset prices traded on the financial markets.

Navigating the turbulent waters of the markets these days is not an easy task, as there are days when even the assets considered the safest, such as US government securities or gold quotations, fall in price. However, investments are made with a perspective, and history has shown that perspective and patience bear fruit. Prices for main financial assets (such as stocks and bonds) tend to grow, in spite of occasional syncopes like the 2007-2008 financial crisis.

Chart: Evolution over the last 20 years of the US stock price index (S & P500) and of the aggregate global bond index calculated by Bloomberg

Sursa: Bloomberg

The current situation and the state of emergency decreed by government authorities in many countries - including Romania - does not mean that money and investments are evaporating or being requisitioned or that financial markets are freezing, but it is strictly related to public health issues. At the same time, however, we believe that the reactions and price fluctuations of financial markets in recent days and weeks indicate an excessive sensitivity to the evolution of the Coronavirus epidemic, displacing the evaluation of many financial assets beyond their economically based values, which makes many of them to trade at prices that can be attractive for medium and long term investments. At the same time, national monetary and fiscal authorities, as well as international financial institutions, have already adopted measures of exceptional scope and firmness, from reducing interest rates (to 0% in the case of the USA), to interventions for the purchase of government securities and securities issued by companies (in case of the USA, the euro area and not only), continuing with fiscal facilities, guarantees and government investments promised by a whole series of states, financing facilities to and from the banking system, as well as some temporary derogations from various regulations that may excessively constrain economic activity during this period [1]. Our opinion is that the epidemic and its impact have great chances to mention a transitory character, of maximum 1-2 quarters, while the impact of the measures to stimulate the economy is much more likely to last even after the (1) coronavirus epidemic. And the emergency situation / social constraints will be resolved either (2) the world and the market will get used to and adapt to the new situation and will realize that the economy or the financial system is not collapsing.

Mutual funds managed by Erste Asset Management are funds that invest in generally liquid and well-established markets, such as stock exchanges or the state, local and European securities markets. Most funds invest following some benchmarks such as:

  • Erste Bond Flexible RON (denominated fund in lei) - a combination between the JPMorgan index of local government securities (mainly) and the ROBID interbank interest rate at 3 months; [1]
  • Erste Bond Flexible EUR (fund denominated in EUR) - a combination between the JPMorgan index of Romanian government securities issued in EUR on the European market (mainly) and the EURIBOR interbank interest rate at 3 months;
  • Erste Liquidity RON - a combination between the JPMorgan index of local government securities with a maximum maturity of 3 years (mainly) and the ROBID interbank interest rate at 1 month;
  • Erste Balanced RON - a combination between the JPMorgan index of local government securities, the BET-XT index of BVB and the ROBID 1-month interbank interest rate;
  • Erste Equity Romania - a combination between the BET-XT index of BVB and the ROBID 1-month interbank interest rate;

The reference indices also indicate the main types of investments of the funds, as well as their performance reference. The relative performance of EAM funds can be found in the Key Investor Documents (DICI) published on the website www.erste-am.ro. Faced with the increase in market volatility, in the last weeks and months, the strategies of investment funds have been adjusted in a defensive manner, so the exposure to market risks has become lower than that related to the strategic mix of the reference index. For this reason, all funds register performances superior to the reference index (which reflects in a generic way the “market”) from the beginning of the year until the present date (March 17, 2020). Of course this is a short-term perspective and we always recommend a long-term one and also warn that past performance is not a guarantee for future results.

When it comes to performance in absolute terms, as mentioned, it was influenced by market volatility, which we strongly believe will subside in the coming months. Especially if we talk about bond funds, whose majority investments are in Romanian government securities (as in the case of Erste Bond Flexible RON and Erste Bond Flexible EUR funds) or Romanian government securities and bank deposits (as in the case of Erste Liquidity RON), we believe that the risk of non-compliance with the issuers' payment obligations is not significant, while the risk of fluctuations due to interest rate volatility is a controlled one. This is also the reason why, based on the actual fluctuations of the last 5 years, these funds are classified according to DICI in the category of funds with low risk, i.e. 2 (from a risk scale of 1, representing the lowest level of risk at 7, which is the highest level of risk).

In the end, we want to remind investors and potential investors that in times of volatility it is always a good idea to invest in installments in equal tranches as absolute amounts, because such an acquisition strategy allows the purchase of a greater number of equity securities when their prices are lower, respectively a smaller number when their prices are higher, ensuring a more attractive average of long-term purchase prices. For this purpose, in BCR you have access to the dedicated product called Capital Plan, which can be part of the financial plan to discuss with your bank advisor.

We are always at your disposal with additional information and we assure you of our devotion to financial investment management.


Erste Asset Management Team

1On request, we can send you a long list of concrete measures taken by various states, although it is constantly evolving, the most recent measure being the announcement by the ECB of a Pandemic Emergency Purchase Program worth 750 billion.