The super election year of 2024 lies behind us. In addition to another interest rate hike by the major central banks in the USA and Europe, it brought a potentially landmark election victory for Donald Trump in the US presidential election. What is in store for 2025?
In the Funds check series, the fund managers of selected funds look back on the developments of the past year and give their assessment of what to expect from the stock exchanges in 2025. (Please note: forecasts are no reliable indicator of future performance.)
(c) Photo: Samuel Kreuz
"For the coming year, we expect increased volatility, but this will open up opportunities for active fund management."
Gerhard Beulig, Fund manager ERSTE GREEN INVEST MIX
Fund & Performance
ERSTE GREEN INVEST MIX offers investors a balanced mix of stocks and bonds. Assets, which are classified as sustainable by the management company based on a predefined selection process, are acquired directly as well as indirectly. In the equities section, the fund invests worldwide primarily in companies that make a positive contribution to ecological megatrends. In the bond section, so-called green bonds are acquired, which are issued to finance sustainable projects (Note: Please note that investments in sustainable investment funds involve risks as well as opportunities).
Note: Please note that an investment in securities entails risks in addition to the opportunities described. Past performance is not a reliable indicator of future performance.
Performance since start of the fund (13.10.2020). 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 Gerhard Beulig
How did the fund perform in 2024?
The performance of the fund was fairly consistent in 2024. The equity allocation initially suffered from the renewed rise in yields. Interest rates are an important factor for the costs of renewable energy projects. While wind or solar parks have very low operating costs because the fuel is free, the majority of the costs are incurred at the time of construction, which means that higher capital costs are clearly noticeable.
From the summer onwards, it was mainly political reasons that led to high volatility and significant share price losses for companies in the environmental technology sector. After Donald Trump’s election victory on 5 November and, above all, the unexpected "red sweep" (the Senate and House of Representatives also with Republican majorities), there are fears that Biden’s climate protection bill (Inflation Reduction Act, IRA) could be repealed by the incoming administration. Since its adoption in the summer of 2022, the IRA has provided a significant tailwind for many companies in the renewable energy, electric vehicle, and green hydrogen sectors. The bond market recorded gains only from June onwards due to interest rate developments, with a weak positive return being recorded overall.
What was the focus of the fund in 2024?
The fund continued to focus heavily on the energy theme in the equity segment, which accounted for about half of the portfolio, ranging from renewable energy and energy efficiency to energy storage and mobility. In addition to climate change and the quest for energy autonomy in the wake of the 2022 Ukrainian invasion, the enormous demand for electricity from data centres, which are urgently needed for various future topics (including artificial intelligence), is an additional driver. Thus, after years of stagnation, demand for electricity in the USA is set to increase significantly in the coming years. In addition to renewable energy, which is available quickly and cheaply, we have also stepped up the allocation in companies that benefit from the urgently needed expansion of the power grid.
In the bond segment, we made investments mainly in medium-term bonds in the green and social bond segment. The portfolio has thus been classified as an impact portfolio.
What does the fund management team expect for 2025 in terms of global economy and trends?
The environment in which we have been operating since the election results has changed. Above all, there is uncertainty about exactly what Trump will do in his new, more powerful position. How this will pan out for the upcoming legislative period remains to be seen. Trump even made positive statements about solar energy during the election campaign (“I'm a big fan of solar”). The areas of battery storage and grid expansion should continue to receive support, as these topics are also supported by Republicans.
On the other hand, we see e-mobility and offshore wind in particular as being negatively affected, i.e. those are topics on which Trump has publicly taken a negative stance. For the coming year, we expect increased volatility, but this will open up opportunities for active fund management to take advantage of opportunities and buy on weakness.
The environment for bonds in general will continue to be dominated by low inflation, interest rate cuts by central banks, and a steepening of the yield curve in 2025.
What are your priorities in the fund, based on your expectations?
We continue to focus heavily on the energy sector in our allocation, which currently accounts for more than 60% of the equity component, and we also maintain our focus on solar energy here. Solar power is now one of the cheapest sources of electricity worldwide and also one of the fastest to connect to the grid. This has recently led to a significant increase in demand from large technology companies for the topic of artificial intelligence and the data centre capacities required for it. Second in terms of allocation volume is the transformation segment, followed by waste & recycling, water, and adaptation.
As disappointing as last year’s developments were for investors, especially in comparison to the market as a whole, they have led to a further sharp decline in the valuations of cleantech companies. Despite the fact that expected growth rates over the coming years remain significantly higher, many valuation multiples are now well below those of the broader market. We cannot predict when sentiment towards this market segment will turn, but phases of exaggeration often last longer in both directions than one might assume.
From a long-term perspective, however, it has always been valuations and growth that have led to good performance on the equity market, which is why we consider the current level to be attractive. In the bond segment, we will maintain our basic strategy. We regard medium-term maturities as attractive in an environment of a steepening yield curve. (Please note: an investment in securities involves risks as well as opportunities. Forecasts are no reliable indicator of future performance.)
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