Persistently high inflation and the restrictive course of the central banks continued to dominate the first half of the year. In this series, Funds exclusive, our fund managers look back on the performance of selected funds and explain their view with regard to the second half of the year.

"We assume further dynamic growth of the microfinance market due to the continued high demand."

Martin Cech, fund manager ERSTE RESPONSIBLE MICROFINANCE

Fund & Performance

The ERSTE RESPONSIBLE MICROFINANCE fund is a fund of funds that invests in microfinance funds, bonds on microfinance instruments and funds, and up to 10% in the shares of companies and microfinance institutions. Foreign currencies are usually hedged. A measurable positive impact on the environment and society is paramount in the investment decision making.

The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation. Past performance is not a reliable indicator of the future performance of a fund.

Performance since start of the fund
Note: Past performance is not a reliable indicator for future performance.

Commentary by fund manager Martin Cech

  • Fund portfolio largely unchanged at fund of funds level
  • Macro environment remains challenging
  • Strong demand should continue to ensure dynamic growth of the microfinance market

 

How did the fund perform in the first half of 2023?

The fund had gained around 1% (as of 4 July 2023) since the beginning of the year. The volatility over the past 36 months had been a low 0.59%.

What was the focus of the fund in the first half?

The fund portfolio remained largely unchanged in the first half in terms of umbrella funds. We are close to fully invested.

The macro environment remains challenging due to elevated inflation rates. However, said rates are lower than in developed markets such as the USA and Europe in many countries where the fund is invested. The major central banks such as the Fed and ECB have raised their key-lending rates several times, although they have reduced the pace of rate hikes.

Many emerging and developing countries are ahead in the cycle and have already reached or passed the peak in terms of interest rate hikes. Since some of the loans to microfinance institutions bear variable interest rates, this effect has a positive impact on the performance of the fund in the medium term. Microfinance institutions (MFIs) remained robust despite this environment. Profitability as measured by the return on equity amounts to 10.9% for the largest MFIs. They pay an average 5.4% coupon in US dollars terms. The effective default rate of microloans is very low.

What do you expect for the second half in terms of global economy and trends?

Even in the event of a slowdown of the global economy, the fund management team would expect the global microfinance market to remain largely unaffected. The low correlation to bond and equity markets led to a positive decoupling last year as well. We assume further dynamic growth of the microfinance market due to the continued high demand. We will keep monitoring the market for possible new products in order to be able to continue to maintain the desired – and, indeed, already implemented – high level of diversification.

What are your priorities in the fund, based on your expectations?

The largest regions are South/Southeast Asia accounting for 20.7%, followed by Central Asia at 18.3%, South America at 13.2% and Central America at 11.2% of assets under management. The share in Sub-Saharan Africa increased to 7.1%. ERSTE RESPONSIBLE MICROFINANCE is currently invested in 94 countries via target funds. While local currencies account for around 12% of the fund's assets, the investment in the US dollar is almost entirely hedged. The share of microfinance investments is currently around 6%. About 68 % of the microfinance clients are female, 50 % come from rural regions. The average loan amounts to EUR 3,177.

Portfolio positions of funds disclosed in this document are based on market developments at the time of going to print. In the context of active management, the portfolio positions mentioned may change at any time.

ERSTE RESPONSIBLE MICROFINANCE

Important legal note:

Prognoses are not a reliable indicator for future performance.

Disclaimer

This document is an advertisement. Please refer to the prospectus of the UCITS or to the Information for Investors pursuant to Art 21 AIFMG of the alternative investment fund and the Key Information Document before making any final investment decisions. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to Art  21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to Art  21 AIFMG, and the Key Information Document can be viewed in their latest versions at the website www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the website www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to Art 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.