(LF) INCOME PLUS € FUND LU0385660161

The Fund is actively managed and it invests primarily in a portfolio composed of bank deposits, money market instruments and debt securities denominated in EUR. The Fund may invest more than 35% of its assets in Greek Government Debt Securities and more than 50% of its assets in debt securities, money market instruments and bank deposits that bear Greek country risk. The investment portfolio of the Fund aims to a duration lower than three (3) years. The Fund is not allowed to invest in equity securities.

At the start of the first quarter of 2026, European fixed income markets were relatively stable, supported by moderating inflation and expectations that the ECB would remain on hold, with an increasing probability of rate cuts being priced in by investors. Against this backdrop, the fund remained largely invested, selectively adding exposure through primary market participation. As the quarter progressed, tightening credit spreads and a continued decline in short-term yields led to a strong performance in bond prices. We used this strength opportunistically to reduce exposure to cash bonds and tactically introduced short positions in 5-year German Bund futures, aiming to lower the portfolio’s overall duration. Market conditions shifted abruptly in February following the strike on Iran and the subsequent escalation into a broader conflict. The sharp rise in oil prices and concerns around disruptions in the Strait of Hormuz triggered a significant repricing of inflation expectations. In contrast to typical risk-off episodes, bonds did not benefit from safe-haven flows, as markets began to price in the possibility of renewed rate hikes by the ECB.

In this environment, the fund’s defensive positioning proved beneficial. Short positions in 5-year German Bund futures, combined with shorts in peripheral sovereigns (BTPs and OATs), helped cushion the impact of rising yields and widening spreads. As the quarter progressed and market pricing became increasingly aggressive—at one point implying more than three ECB rate hikes—we viewed this as excessive. Consequently, we began to rebuild duration by gradually adding long positions in 5-year German Bund futures, ending the quarter with a meaningful long exposure. At the same time, we reduced our short exposure to Italian government bonds, increasing our credit spread exposure, as we anticipated a potential de-escalation of hostilities and a normalization of market conditions.