Kathrein Mandatum Funds celebrate 20 years

On 12 July 2019, the asset management funds of Kathrein Privatbank celebrated their 20th anniversary.

At inception in 1999, the funds were called Kathrein Q.I.K. 25, Kathrein Q.I.K. 50, and Kathrein Q.I.K. 70. "Q.I.K." stands for "quantitative investments Kathrein", later replaced by "Mandatum". One year later, in 2000, the fund known today as "Kathrein Mandatum 100" commenced operation. The most recent product in the series is the Kathrein Mandatum. This fixed income fund of funds is only coming up on its first anniversary this summer but has been able to perform well despite the low interest rate environment.

From the very beginning, board member and Kathrein CFO Harald Holzer and his team were in charge of Kathrein's house view, including asset allocation for the Mandatum funds. Even though the fund dropped the Q.I.K. label from its name, the investment concept continues to be based on a quantitative approach. Allocation is based on enhanced portfolio optimization, a theory conceived by Nobel Prize winner Harry Markowitz. The decision for tactical additions of emerging market stocks or US small caps follows clearly defined rules. These models were created in collaboration with long-term partner Ned Davis Research and are reviewed and enhanced on a regular basis. Currencies are managed very actively on a fund level. Trends, rate differentials, and purchase power parity are the main indicators for determining whether to hedge or cancel a foreign currency hedge.

Investments have changed significantly in the low interest rate environment of recent years. While in the beginning, euro government bonds, euro corporate bonds and international government bonds, at times also denominated in foreign currencies, were the only asset classes within the fixed-income segment, the universe has since expanded. Currently, monthly portfolios optimization also includes variable rate corporate bonds, inflation-linked government bonds, covered bonds, high-yield bonds denominated in euros and in US dollars, emerging market corporate bonds and emerging market sovereigns, denominated in local currencies.

The Kathrein Euro Bond, the Kathrein Corporate Bond, and the Kathrein European Equity Funds, which also celebrate their 20th year that same day, have been a part of the investment offerings from the very beginning.

Since its inception, Mag. Harald Besser has been the lead manager of the Kathrein Euro Bond Fund and offers an interesting review of those eventful 20 years.

1999 was the birth of the euro currency, and Kathrein made the decision to open the new government bond fund for all euro countries. The four major economies of Germany, France, Italy, and Spain were weighted in the fund from its inception. In 2001 Greece adopted the euro, and so did Cypress in 2008. Both countries would later be responsible for a euro crisis. From the outset, support for the common European currency was not unanimous. That however did not seem to affect the fund's performance. For the last 20 years, euro-denominated government bonds have been one of the best investment options, and the Kathrein Euro Bond has always been one of the best performers in its class. For government bond investors the last 20 years have been marked by a unique bond rally that has brought 10-year German government bond yields from 5.5% at the beginning of 2000 to currently -0.3%. The mixed performance on a country-level posed more of a challenge. In 2004, Italian bond yields were only appr. 10 bps (0.1%) higher than German bond yields. During the euro crisis, this spread in yields widened to 530 bps (5.3%) and was coupled with painful price losses. The fund manager now faces the challenge of extending durations in time in a country where yields are expected to fall and to shorten them where yield increases are anticipated. What makes this thrilling for the fund manager are the many external factors that come into play.

Mag. Andreas Weidinger has led management of the Kathrein Corporate Bonds Fund since its inception.

And has consistently achieved a 4% gain p.a. over the past two decades, also successfully steering clear of some of the major events in the financial world (Parmalat, Lehman).

The fund commenced operation in July 1999. At that time, there were slightly more than 1000 investment-grade euro bonds. 75% of those bonds were still denominated in DEM, NLG, FRF, or in another currency of the euro countries. The Kathrein Corporate Bond was one of the first funds in Austria to focus on the asset class "fixed-Income EUR corporate bonds". By fine-tuning our investment approach, we were able to identify some bankruptcies or imminent downgrades in time to avoid them. We were not invested in Parmalat and Ahold, nor General Motors and Ford at the time those issuers were downgraded to below investment grade in 2005. Over the past 10 years, two factors have changed significantly. The yield level that has fallen to new record lows, i.e. the capital market environment, and the option to invest in passively managed funds. The former resulted in lower return expectations for years to come, and the latter made the fight for investors much fiercer. Gone are the days where it took little more than establishing a fund and collecting money from investors. These days investors need to see the added value. Every day we seek to achieve this added value for our clients -- Alpha is more crucial than ever!

20 years ago, the Kathrein European Equity invested in its first stocks. Fund manager Josef Stadler has been with the fund since its inception and gives the following review.

The Kathrein European Equity has always been my "baby". For portfolio optimization, we have considered several equity factors from the very beginning. After 2009, we started allocating more dynamically to the respective factors. We overweight those factors that achieved better results in the short and medium term. This approach helped us through the euro crisis rather unscathed. In 2012 and 2013 things bounced back and we posted double-digit returns. For the last few years, Kathrein's models have been able to outperform in some of the reporting periods.
The Mandatum funds' excellent performance has been rewarded time and again with fund awards. Since 2016, the Kathrein Asset Allocation Funds have won awards seven times in their respective categories at the Dachfonds Awards Austria, among them several top 3 accolades. One highlight was the recognition at the 2017 Lipper Fund Awards with the "Group Award Mixed Assets" and the "Group Award Overall".

For inquiries please contact:

Mag. Judith Galter BSc., CIIA
Head of Sales & Marketing

Kathrein Privatbank Aktiengesellschaft
Wipplingerstraße 25, 1010 Wien
Mobile: +43 676 83191 365
Mail: judith.galter@kathrein.at