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).

"The performance of the biotech sector in the second half of 2024 will be strongly affected by the macroeconomic environment."

Harald Kober, fund manager ERSTE STOCK BIOTEC

Fund & Performance

The ERSTE STOCK BIOTEC invests primarily in companies in the developed markets from the field of biotechnology. The fund's investment process is based on fundamental business analysis. The majority of companies in this area can be found in the United States. As a result, Pacific and European equities tend to play a subordinated role in 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.

Commentary by fund manager Harald Kober

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

In the first half of 2024, the biotech sector failed to benefit from the strong performance of growth shares and ended up posting only minor gains. The interest rate cuts in the USA expected at the beginning of the year have not yet been implemented by the Fed, as the US economy is in stronger shape than expected.

Economic growth and newly created jobs in the USA are proving to be very robust. The Fed does not want to cut rates too early and thus accelerate inflation again. Falling interest rates would be very supportive for the sector and would ensure sustained inflows.

Pfizer/BioNtech, Moderna, and Novavax benefited shortly during the first half of the year from the outbreak of bird flu in the USA and the fears that the disease could spread not only from animal to human but also from human to human. However, the probability of human-to-human transmission is very low.

In the first half of 2024, investors increasingly focussed on larger companies that already had drugs/therapies on the market, were making money with them, and were not faced with any financing worries. Smaller companies that will need financing in the next 12 to 18 months were hit particularly hard. More than 200 biotech companies are now trading below their cash level, which constitutes a new record. However, there was no shortage of M&A activities in the first half of 2024. Although we did not see any mega deals, there was a large number of smaller transactions. Vertex strengthened its expertise in the field of immuno-oncology with the acquisition of Alpine Immune Sciences by Vertex Pharmaceuticals in a deal worth USD 4bn. Gilead Sciences acquired Cymabay Therapeutics in February 2024, thereby securing a promising drug for rare liver diseases.

ERSTE STOCK BIOTEC was invested more in large- and mid-caps and less in small-caps in the first half of 2024.

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

 

What are your expectations for the rest of the year?

The interest rate hike cycle is likely to have come to a standstill due to falling inflation rates. The market is now expecting the first US interest rate cuts for the second half of 2024. This would be a very good environment for growth shares and therefore also for the biotechnology sector. The major pharmaceutical and biotechnology companies have bulging coffers and, with the exception of the “obesity shares” Eli-Lilly and NovoNordisk, are trading at historically low P/E ratios. Valuations in the biotech sector remain very attractive, particularly for small- and mid-caps. Takeover targets are increasingly likely to be companies that already have an approved drug or are close to approval.

In the second half of 2024, sales of Biogen/Eisai's Alzheimer's drug LEQEMBI should also gain momentum and open up a market with the first new drug in 20 years. The commercial success of Syfore from Appelis Pharmaceuticals in dry, age-related macular degeneration is also significant. 

 

What is your focus in the fund for the rest of 2024?

In ERSTE STOCK BIOTEC, as mentioned above, we are focussing on companies with future-oriented business models and promising drug developments. Other examples include the shares of AstraZeneca (focus on oncology; strong sales and earnings growth in the coming years) or Madrigal Therapeutics (first approved NASH drug that can reduce liver inflammation and thus slow down the progression of the disease).

The performance of the biotech sector in the second half of 2024 will be strongly affected by the macroeconomic environment. If key-lending rates and bond yields decrease, the sector should benefit above average.

Note: Please note that investing in securities involves risks as well as opportunities. Forecasts are not a reliable indicator of future performance. The companies listed here have been selected as examples and do not constitute an investment recommendation. The portfolio positions listed may change at any time as part of active management. There is no guarantee that securities will be permanently included in the portfolio.

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.