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).

"We continue to focus strongly on the energy sector in our allocation and continue to emphasise solar power."

Clemens Klein, fund manager ERSTE WWF STOCK ENVIRONMENT

"We see the current environment as more relaxed than in the past two years; interest rates have reached a peak and are more likely to fall than rise from here."

Alexander Weiss, fund manager ERSTE WWF STOCK ENVIRONMENT

Fund & Performance

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.

Commentary by fund managers
Clemens Klein und Alexander Weiss

How did the fund perform in the first half of 2024?

The fund incurred a loss in the first half of the year. The main reason was definitely the current interest rate environment. In the clean tech sector, we tend to see younger and smaller companies, many of which finance themselves at variable rates and often have higher capital requirements. Both of these factors have recently put pressure on these companies and their market valuation, as we have experienced very strong and, above all, rapidly rising interest rates over the past two years. In addition, the interest rate is an important factor for the costs of renewable energy projects. With a wind or solar park, there are very few running costs as the “fuel” is free. However, the majority of the costs are incurred at the time of construction, which means that the impact of higher interest rates is of course clearly noticeable.

 

What was the focus of the fund in the first half of 2024?

The fund continues to focus strongly on energy, including renewable energy, energy efficiency, energy storage, and mobility. In view of the Ukraine invasion in 2022 and the increased focus on energy autonomy and the higher electricity price environment, we have deliberately increased this segment and are maintaining this focus. The energy segment currently accounts for over 70% of the fund’s assets under management, followed by waste & recycling, which accounts for a 13% allocation. The third pillar of the fund, water, commands an allocation of about 9%. 

 

What does the fund management team expect for the second half of 2024 in terms of global economy and trends? 

As already mentioned, environmental equities as well as small and mid-capitalised companies have been increasingly affected by interest rate changes. The global outlook for key-lending rates is accordingly important here. We see the current environment as more relaxed than in the past two years; interest rates have reached a peak and are more likely to fall than rise from here.

It was primarily the rapid and sharp rise in interest rates that had a negative impact on performance; we should now be on the other side of that phase. In terms of segments, we remain positive on energy. The increased electricity wholesale prices for solar and wind parks have significantly improved the profitability of companies. Valuations are well below long-term levels, which is also reflected in the recent increase in takeovers.

One example is the German solar and wind project developer Encavis, which was taken off the market by one of the largest global private equity companies at a premium of 60% to the market price. We regard this as a positive aspect; it shows the value of the companies, which is currently not reflected by the equity markets. (Note: The company listed here has been selected as an example and does not constitute an investment recommendation.)

 

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

We continue to focus strongly on the energy sector in our allocation and continue to emphasise solar power. Solar power is now one of the cheapest sources of electricity worldwide and also one of the fastest to connect to the grid. Recently, the segment has been boosted by the area of artificial intelligence; large tech companies are massively expanding their data centre capacities, which is leading to a significant increase in demand for electricity. In the case of large tech companies, two points are very important here: the electricity must be green and available as quickly as possible. Solar energy is perfect for this, and we have recently seen a further acceleration of solar expansion on a global scale.

Microsoft, for example, has recently announced the largest ever purchase agreement for renewable energy, and major technology groups have also secured large quantities of green electricity for the coming years. We are encouraged by the fact that the clean tech sector continues to trade below the valuations of the market as a whole, while earnings expectations for the coming years are almost twice as high as those of the broader market. Although valuations are not perfect as a timing tool, they are very relevant for performance over a long-term investment horizon. (Note: The company listed here has been selected as an example and does not constitute an investment recommendation. Please note that an investment in securities involves risks as well as opportunities).

ERSTE WWF STOCK ENVIRONMENT

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.