While the stock markets climbed to new record highs in the first half of the year, the first central banks also initiated a turnaround in monetary policy by cutting interest rates. Will the environment remain positive?

In the Funds exclusive series, the fund managers of selected funds look back on developments in the first half of 2024 and give their assessment of what the markets could expect in 2024. (Note: Prognoses are not a reliable indicator of future performance).

"Interest rates will be the decisive factor for dividend shares in the further course of the year."

Alexander Sikora-Sickl, fund manager ERSTE RESPONSIBLE STOCK DIVIDEND

Fund & Performance

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.

Commentary by fund manager Alexander Sikora-Sickl

How would you sum up the first half of the year?

The first half of 2024 was sustainably difficult for the high-dividend and minimum-volatility (i.e. low fluctuations) segments. While dividend shares managed to record a positive performance during that period, they lagged behind the broad market and, above all, the factors of quality and growth. One obstacle for high-dividend shares continued to be the high level of interest rates, which made attractively priced bonds more alluring to investors than dividend shares.

The hope of interest rate cuts by the ECB and the US Federal Reserve had led dividend shares to temporarily perform better. However, the prospect of only a moderate reduction in key-lending rates dampened this expectation again. In addition, there was continued strong interest in high-quality growth shares, above all the Magnificent Seven, i.e. large technology companies with above-average growth rates in profits and sales. By contrast, from an investor's perspective, the assumed potential of, i.e. fantasy associated with, defensive shares with low volatility and above-average levels of profit distribution was limited.

 

How did ERSTE RESPONSIBLE STOCK DIVIDEND perform in this environment?

ERSTE RESPONSIBLE STOCK DIVIDEND could not escape this market environment, even though the performance in the reporting period was positive, with the fund even outperforming some well-known competitors. The financial sector, consumer discretionary, and technology shares delivered the biggest contribution to performance in the portfolio over the past six months. However, the latter commands a below-benchmark weighting in the portfolio due to the generally low dividend yield. Consumer cyclicals benefited from the strong economic growth in the USA, which is strongly driven by private consumption. In the financial sector, it was primarily banks and real estate shares that generated a positive contribution to overall performance.

By contrast, the utilities and healthcare sectors underperformed in relation to the overall portfolio. Utilities suffered from the high level of interest rates, and shares in the healthcare sector are currently facing the challenge that, unlike other sectors, they were unable to pass on the increased costs sufficiently during the inflation phase.

 

What developments do you expect for the rest of the year?

Interest rates will be the decisive factor for dividend shares in the further course of the year. The ECB has started with an initial interest rate cut, but one rate cut is not enough to bring about a sustainable trend reversal for the dividend factor. Whether key-lending rate cuts (ECB, US Fed) will follow in the future will primarily depend on inflation data and the development of the US labour market.

Our immediate base-case scenario for the second 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. The relevant market segments should only rise in investor favour again once the market expects further interest rate cuts and the associated sustained decline in bond yields.

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

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.