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: Stephan Huger
“We regard software manufacturers as the next direct beneficiaries of AI developments.”
Bernhard Ruttenstorfer, Fund manager ERSTE STOCK TECHNO
Fund & Performance
The ERSTE STOCK TECHNO mainly invests in companies from developed technology markets. 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. When selecting stocks, the focus is on high-quality, high-growth companies. cological and social factors as well as corporate management factors are integrated into the investment process.
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.
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 Bernhard Ruttenstorfer
What sort of conclusion do you draw from 2024 on the capital markets?
As in the previous year, the fund generated a clearly positive performance in 2024. (Please note: an investment in securities involves risks as well as opportunities.) This is mainly due to ongoing trends: cloud, artificial intelligence (AI), automation, and cybersecurity. Even though the software segment did not meet expectations in the first half of the year, ERSTE STOCK TECHNO made a significant adjustment to the portfolio into that direction during the summer months: investments in semiconductor companies were reduced, while positions in the software segment were increased and new positions opened. In particular, this involved reducing the number of companies that supplied equipment to the chip industry. This was necessary due to further restrictions and the very different development of the various semiconductor sub-segments.
We generally positioned the fund more prominently towards software. We regard software manufacturers as the next direct beneficiaries of AI developments. In addition to software in general, we continue to see particularly strong growth potential for cybersecurity software providers. Demand remains high, the environment is becoming more complex, and possible system failures are costly. That is why we think that budgets for cybersecurity products will remain substantial.
The largest positive contributions to fund performance came from companies such as Broadcom, Nvidia, Oracle, Salesforce, and Servicenow. Semiconductor companies struggling with weak end markets, such as AMS Osram, Solaredge and Intel, made negative contributions. (Please note: the companies mentioned here have been selected as examples and do not constitute an investment recommendation).
What sort of developments do you expect for 2025?
We can also see a positive equity environment for 2025. In particular, the technology sector will continue to benefit from the existing megatrends in the coming year. Automation, AI, cybersecurity, robotics, and cloud/data centres. Manufacturers of components for data centres (GPU, ASICs, CPU, networks, and storage) are facing high demand. Companies such as Broadcom, AMD, ARM, and Nvidia are excellently positioned for the next few years. Companies that primarily supply automotive and industrial customers are still exposed to high inventory levels. Although the reduction in inventories is underway, final demand has to recover; and there are currently few indications of this being the case. (Please note: the companies mentioned here have been selected as examples and do not constitute an investment recommendation.)
What segments do you rate positively?
In addition to chip manufacturers for data centres, we see the software industry (including Servicenow, Salesforce.com, Wix and Palo Alto) as well positioned. However, we do also note that end demand in this segment is mixed, although we have seen a stabilisation in customer ordering behaviour. (Please note: the companies mentioned here have been selected as examples and do not constitute an investment recommendation ). Also, positive effects at the bottom line can be seen, as software companies benefit from cost optimisations. Since Gen-KI features can now be better integrated into existing and new products, we can assume higher product sales volumes. Cybersecurity providers play a particularly important role here, as growth is high, and the industry is defensive in nature.
The interest rate factor should not be underestimated. A new cycle of interest rate cuts began a few months ago. Growth shares will benefit from this and sentiment will continue to improve. We are aware that valuations are ambitious, but we are sticking to our aggressive positioning as we expect accelerated earnings growth for 2025 and strong demand from US consumers. Finally, normalised semiconductor inventories in the coming year will also provide support. (Please note: forecasts are no reliable indicator of future performance).
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