DNCA Alpha Bonds

Investment rationale

DNCA Invest Alpha Bonds is an international multi-strategy bond sub-fund designed to seek a return above €STR + 2% over a recommended holding period of more than three years while targeting annual volatility below 5% in normal market conditions. It is a UCITS SICAV classified under SFDR Article 8, with a PRIIPs synthetic risk indicator of 2 out of 7 and a minimum investment of EUR 200,000 for the I EUR share class. It is intended for retail investors without financial knowledge or sector experience who can bear capital losses and do not require capital protection. Its distinct role is as a diversified bond allocation using discretionary long/short rate, curve, arbitrage, credit and currency strategies rather than a long-only sovereign or corporate bond approach.

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How the strategy works

The fund’s objective is to deliver, net of fees, performance above the €STR index plus 2% over more than three years, while seeking to keep annual volatility below 5% in normal market conditions. It invests mainly in fixed-rate, floating-rate and inflation-linked debt securities and money market instruments, including government bonds, corporate bonds, supranational agencies, convertible or exchangeable bonds, and contingent convertibles, with equity exposure possible through convertibles, synthetic convertibles or equity futures options. The modified duration of the product is kept between -3 and +7; non-OECD issuers are capped at 25% of total assets; securities must be rated at least B- at purchase or equivalent; and downgraded securities below B- cannot exceed 10% of total assets. The fund may invest up to 10% of net assets in UCITS and other UCIs, may use all eligible listed or OTC derivatives including futures, options, swaps, CDS and CDS indices, and may invest in any currency with non-base-currency exposure hedged so that such exposure does not exceed 40% of total assets. It is actively managed, uses €STR + 2% as the reference index for performance fee calculation and performance comparison, follows an accumulation policy, and offers daily valuation with a recommended minimum holding period of three years.

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Investment philosophy

• The initial investment universe consists of government bonds issued by United Nations countries integrating the 17 Sustainable Development Goals, plus corporate bonds and similar securities from issuers headquartered in OECD countries, supranational agencies, and securities rated at least B- by Standard & Poor’s or equivalent.

• Security selection applies DNCA’s internal extra-financial model, Above & Beyond Analysis (ABA), based on corporate responsibility, controversies, dialogue and engagement, with exclusion of controversial issuers, serious violators of UN Global Compact principles, controversial weapons and excluded sectors; at least 90% of securities, excluding cash, cash equivalents, derivatives and money-market funds, are subject to extra-financial analysis and 20% of the worst issuers in the universe are excluded.

• Portfolio construction combines several strategies: directional long/short positioning based on rate and inflation expectations, yield-curve strategies exploiting long- versus short-rate spreads, arbitrage strategies seeking relative value across bond asset classes, and a credit strategy using private-sector bonds.

• Positioning as at 31 August 2026 shows broad sovereign exposure with country duration contributions led by Spain, Japan, New Zealand, the United Kingdom, the euro area and the United States; volatility contributions are highest from G10 non-eurozone government bonds, emerging-market government bonds and peripheral eurozone government bonds, with limited contribution from corporate and equity exposures.

• Risk is managed through explicit limits, including modified duration between -3 and +7, maximum 25% in non-OECD issuers, maximum 20% in Coco bonds, maximum 10% equity exposure, maximum 10% in other collective investment schemes, and active use of derivatives and currency hedging; as of 31 August 2026 the portfolio was managed with an ex-ante risk level below 2%.

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Management team

The portfolio managers are Pascal Gilbert, François Collet, Fabien Georges, Paul Lentz, Thibault Chrapaty and Guillaume Fradin. The fund is presented as an international multi-strategies bonds portfolio managed on a discretionary basis by this team.

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Distinctive features

The fund stands out through a multi-strategy bond framework that can combine sovereign rates, inflation-linked instruments, curve trades, credit, currencies and options within one portfolio. It also embeds a formal ESG and sustainability framework: SFDR Article 8 classification, 100% ABA coverage rate for the reported government bond scope as at 31 August 2026, an average ESG score of 5.2/10, and explicit sustainability engagement metrics covering the Paris Agreement, biodiversity convention, coal phase-out and the Nuclear Non-Proliferation Agreement. The portfolio retains flexibility across geographies and instruments, including OECD corporates, supranationals, convertibles, Coco bonds, derivatives and foreign exchange, with daily dealing and a Bloomberg liquidity score of 91.1%. The I EUR share class has ongoing management and administrative costs of 0.67%, transaction costs of 0.08%, and a performance fee mechanism of 20% of positive net performance above €STR + 2% subject to a high-water mark.

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Risks

The main risks are capital loss, interest-rate risk, discretionary management risk, credit risk, inflation risk, counterparty risk, speculative securities risk, derivative and embedded derivative risk, convertible securities risk, specific risks linked to convertible, exchangeable and mandatory convertible bonds, currency risk, liquidity risk, high volatility risk, equity risk, ESG risk and sustainability risk. The PRIIPs synthetic risk indicator is 2 out of 7, and counterparty and operational risks may be insufficiently captured by that indicator. Structurally, risk arises from the fund’s ability to use listed and OTC derivatives, CDS, swaps, options and futures; to invest in below-investment-grade securities down to B- at purchase; to hold up to 20% in Coco bonds; and to take up to 10% equity exposure through convertibles or derivatives. Additional sources of risk come from non-euro and emerging-market exposure, with non-OECD issuers allowed up to 25% of total assets and currency exposure to non-base currencies allowed, though hedging is used so that such exposure does not exceed 40% of total assets. The product does not provide capital protection, and it includes gates and a swing pricing mechanism.

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Asset manager

The sub-fund is DNCA Invest Alpha Bonds, a compartment of the Luxembourg-domiciled DNCA Invest SICAV. The management company is DNCA Finance, domiciled in France, with its registered office at 19 Place Vendôme, 75001 Paris. The custodian is BNP Paribas, Luxembourg Branch.

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Performance commentary

August 2026 was a quieter month for financial markets after U.S. strikes against Iran ceased, which the managers say helped stabilise oil prices, although they still view the geopolitical backdrop as unstable and point to rising European gas prices and below-average winter storage levels. The managers say signs of an economic rebound seen in June were being confirmed, making further central-bank rate hikes look more tangible and pushing up short-term interest rates globally. The managers view debate over the long-term inflationary effects of artificial intelligence as secondary to near-term forces such as stronger real nominal growth and defence spending, which they say are increasing capital demand and sustaining upward pressure on yields worldwide. In the portfolio, the managers say directional risk remained limited with duration extended to nearly 3, and they preferred satellite strategies such as currencies, especially a long South Korean won position, while short positions in French government debt also helped; sovereign exposure was limited overall except in markets such as Japan and New Zealand, and they were looking to capture value in short-term rates through the options market.

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