The ERSTE WWF STOCK ENVIRONMENT invests worldwide primarily in companies in the field of environmental technology. The investment process of the fund is based on fundamental company analysis. The selection of stocks takes place with a focus on companies in which an environmental benefit could be identified and which primarily active in the areas of water treatment and -supply, recycling and waste management, renewable energy, energy-efficiency and mobility (Note: Please note that investments in sustainable investment funds involve risks as well as opportunities). A hedge against foreign currency risks is generally not provided, but is possible. Since October 2006, a cooperation exists between Erste Asset Management and WWF (World Wide Fund for Nature) and the fund management is supported by an environmental advisory board, initiated by WWF. At the same time, Erste Asset Management donates part of the management fee to the fund.

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

Performance since start of the fund. 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 year 2023?

While the positive performance of the broad equity market was primarily driven by major US technology companies such as Apple, Microsoft, Meta, Nvidia, etc., shares from the renewable energy sector or the environmental sector in general ended up on the weaker side, performance-wise.

Note: The companies listed here have been selected as examples and do not constitute an investment recommendation.

The main reason for the negative development is the change in the central banks' interest rate policy. The sharp rise in interest rates is weighing more heavily on shares from the environmental and renewable energy sectors than on those from other sectors. Smaller companies often do not finance themselves via the capital market, i.e. via fixed-rate bonds, but via floating-rate debt. If interest rates rise to such an extent and at such a speed as in the past two years, this has an impact on companies that comes in the form of higher financing and interest costs.

How did ERSTE WWF STOCK ENVIRONMENT perform in this environment?

The weak annual performance of environmental shares has also affected the performance of ERSTE WWF STOCK ENVIRONMENT. The fund pursues the strategy of achieving a measurable, positive benefit for the environment and invests in numerous so-called “pure plays” from the environmental and renewable energy sector. As described above, these small and mid-cap companies have been hit particularly hard by the rise in interest rates.

What are your expectations for 2024?

In terms of interest rate developments in particular, it seems that we have reached the peak of the restrictive central bank policy. Inflation rates are on the decline, and market players are beginning to speculate about interest rate cuts in the course of 2024.

There are also a number of other reasons that fuel our optimism for 2024. On the one hand, the topics and trends in which we invest with ERSTE WWF STOCK ENVIRONMENT will remain relevant. In view of the increasingly frequent dry and drought periods, solutions for water treatment and supply will be needed, to name just one example. However, topics such as recycling and the circular economy are also becoming increasingly important, not least due to the race for limited resources. Above all, the megatrends of renewable energies and electromobility are here to stay, regardless of the market situation, and will even accelerate over the next few years despite already high growth rates. The reason for this is that renewable energies are now the cheapest form of electricity generation in most parts of the world and electric cars are increasingly overtaking combustion engines in terms of overall costs (purchase and use). This trend is set to continue in the coming years.

At the same time, the political support packages (Inflation Reduction Act in the USA and RePowerEU in the European Union) can still be expected to provide support. The implementation of these packages has only just begun, but it is already clear that renewable energies, smart grids, electromobility, energy efficiency, and all related topics will benefit in the long term.

Note: Prognoses are not a reliable indicator of future performance.

The significant cost reduction for many companies is also providing a tailwind. The price of solar modules, for example, has more than halved compared to 2022 and reached new lows. Indeed, prices have fallen by more than 80% over the past ten years. The cost of batteries is also on the decrease, and freight costs have now returned to pre-Covid crisis levels.

What about the valuation level of environmental stocks after the price losses in 2023?

The aforementioned positive factors are not yet reflected in the share prices, but they are certainly reflected in the valuations. The S&P Global Clean Energy index, a broad equity index covering the topic of renewable energies, is now valued significantly in excess of the broad equity market, despite considerably higher expected growth rates. The valuations of small caps have also reached a new record low compared to the market as a whole, although this market segment has historically always traded at a higher price than large companies due to higher growth rates.

There is therefore much to suggest that the environmental sector will remain an attractive investment opportunity and that the current levels offer interesting entry opportunities for investors.

Note: Please note, that an investment in securities entails risks in addition to the opportunities described.

ERSTE WWF STOCK ENVIRONMENT