The ERSTE RESPONSIBLE STOCK DIVIDEND is a sustainability equity fund that invests worldwide primarily in shares of selected companies from developed markets. The fund's investment process is based on fundamental business analysis. When selecting stocks, the focus is on companies with high to medium market capitalization, attractive dividend yields and, in the past, relatively low price fluctuations. Investing in stocks of companies, that are pioneers in terms of ecological, social and governance aspects, are crucial for investment decisions (Note: Please note that investments in sustainable investment funds involve risks as well as opportunities). 

Note: Past performance is not a reliable indicator of future performance.

Performance since start of the fund (1.3.2017). 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.

How would you sum up the market year 2023?

The past year was extremely difficult for the high-dividend (i.e. high-dividend equities) and minimum volatility (i.e. low volatility equities) segments. In recent years, low interest rates have led to strong capital inflows into shares with high dividend yields. This was generally described as a “desperate quest for yield”. Investors shifted from bonds with very low yields into dividend shares that were more volatile but would offer an attractive yield.

This environment reversed dramatically in 2023. The sharp rise in yields as a result of interest rate hikes by central banks made bonds more popular with investors and put dividend shares under pressure. In addition, the combination of margin pressure as a result of inflation and higher debt servicing at the same time caused some companies to worry about the stability of future profit distributions.

At the same time, we experienced a huge increase in interest in technology shares operating in the field of artificial intelligence for much of the year. In fact, it was this segment that drove the market upwards, while defensive stocks with low volatility were on the sidelines of investor interest.

How did ERSTE RESPONSIBLE STOCK DIVIDEND perform in this environment?

ERSTE RESPONSIBLE STOCK DIVIDEND was unable to buck this market trend and posted a negative performance in 2023. The fund selects shares on the basis of dividend payouts (current dividend yield ~4.6%) and low volatility. Due to this focus, it is hardly invested in the technology sector. Conversely, the fund's weightings (utilities, telecoms, consumer staples, healthcare) were focused on those market segments that had performed very weakly in the previous months for the reasons mentioned above.

In these segments, in turn, it was the mature companies with below-average growth and high payout ratios that were under particularly pronounced selling pressure. These included Unilever, Kraft Heinz, Johnson&Johnson, and Pepsico.

Note: The companies listed here have been selected as examples and do not constitute an investment recommendation. In the context of active management, the portfolio positions mentioned may change at any time. There is no guarantee that securities will be permanently included in the portfolio.

What developments do you expect for 2024?

Inflation and economic development will remain crucial for the general market trend in 2024. We currently assume that the US economy is likely to achieve a soft landing thanks to the robust labour market and continued positive private consumption.

By contrast, the risk of recession in Europe remains significantly higher for the time being. At the same time, we expect inflation on both sides of the Atlantic to remain above the central banks' targets for now. This in turn means that we envisage interest rate cuts for the second half of 2024 at the earliest.

For this reason, our base-case scenario for the first half of 2024 is a continuation of the positive trend in the growth and quality segments, with the value and high dividend factors lagging behind. Only interest rate cuts and the associated decline in bond yields are likely to increase the attractiveness of the relevant market segments in the long term. This means a persistently difficult environment for dividend strategies, at least in the first few months of the new year.

Based on this, what are your priorities for the fund?

The fund will undergo its scheduled semi-annual rebalancing (reallocation) in mid-December 2023. As part of this, we expect the focus to remain on the US equity market, as will the prominent weighting of financial equities in the fund. In contrast, cyclical value shares are likely to be further reduced from today's perspective. In our view, the fund should therefore be positioned appropriately for the environment in the first few months of 2024.

ERSTE RESPONSIBLE STOCK DIVIDEND