Inflation thwarts bond investments in Hungary

A difficult first half for bond funds

In contrast with the soaring of stock funds, bond funds in Hungary had a first half full of challenges. The good performance of the stock market, increasing economic activity, the resumption of consumption and the resulting inflation fears had a negative effect on the performance of bond funds, and increasing bond yields made it more difficult for many Hungarian bond funds to realise returns.

Despite the above, there were bond funds that produced nice yields in the first half, and the situation is even better looking back 12 months.

As the list below shows, absolute return bond strategies and investments in corporate bonds were both profitable, but domestic bond investments underperformed overall in H1.

In the first half, the highest yield among forint-denominated retail bonds was the MKB Adaptive Bond Absolute Return Fund with 6.5%. The fund’s 12-month performance was above 15%.

Second place went to CIB Algorithm Funds Sub-fund with nearly 4% yield in H1, followed by the Budapest High Yield Corporate Bond Fund with more than 3%.

Looking at 12-month yields, the same three funds occupy the podium, with MKB on top, Budapest High Yield second with nearly 14% annual yield and CIB Algorithm third with nearly 8%.

Among money market funds, only two forint-denominated retail series remained on the market in H1, with negligible yields as their high liquidity ratio limited yield opportunities.

OTP Optima still biggest in Hungary

Although the first six months of the year presented a series of challenges, this barely showed on the assets managed by the biggest bond funds. The 10 biggest funds increased their combined assets by 3.3% compared to H2 2020 and more than 22% compared to the first half of last year.

The OTP Optima short bond fund remained the biggest bond fund in the first half, managing assets close to HUF 260 billion at the end of June. CIB Start Capital Protected Fund managed HUF 189.5 bn in assets, while K&H Bond Fund was third with HUF 153.7 bn.

Among the biggest bond funds, four saw their assets decrease in the first half. The biggest drop, nearly a third of assets managed, was in the K&H Government Security Fund.

As for the remaining money market funds, all of them lost assets in H1. The category’s total assets managed decreased by nearly a third in 6 months and nearly half in a year. The largest assets were managed by K&&H Dollar Money Market Fund with HUF 14.4 bn, followed by Aegon Polish Money Market Fund with HUF 8.62 bn and Aegon Money Market Fund with HUF 8.44 bn.

According to the Sharpe index, which shows extra yield per unit of deviation, Erste Abolute Return Bond Series D had the highest score, followed by Aegon BondMaxx Series R and Erste Interest Optimum Open-ended Fund.

Of the 59 retail series evaluated, 48 had positive Sharpe scores in H1.

Cover photo: Getty Images