Discussions regarding customs tariffs and geopolitical tensions were the main focus in the first six months of the year on the financial markets. Where are the markets headed in the second half of 2025?

In our Funds check series, fund managers from selected funds look back on the past year's performance and give their assessment of what we can expect for the rest of the year. (Please note that forecasts are no reliable indicator of future performance and that investing in securities involves risks as well as opportunities.)

Summary

  • Due to the uncertainty surrounding the US trade policy, we took a much more defensive stance in our allocation during the first half of the year and significantly reduced our weightings in technology, financials, and industry.
  • It is currently difficult to predict how the trade conflict will develop; whether it will normalise or escalate completely, particularly with China.
  • In the technology sector, however, the megatrends of automation, artificial intelligence, cybersecurity, robotics, and cloud/data centres should continue to provide support.

Fund manager Christoph Vahs
(c) Stephan Huger

Fund & Performance

ERSTE RESPONSIBLE STOCK AMERICA is a sustainability equity fund that primarily invests in shares of selected companies based or stock exchange listed in North America. The fund's investment process is based on fundamental business analysis. When selecting stocks, high-quality, high-growth companies are used. Investing in shares of companies that are pioneers in terms of ecological, social and governance aspects is the focus of the investment decision.

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 Christoph Vahs

What sort of conclusion do you draw from the first half of 2025 on the capital markets?

All in all, the first half of 2025 was characterised by high uncertainty coupled with high volatility, particularly in the USA. Although the S&P 500 recorded its biggest gain in May in 30 years, it had lost almost 15% in early April within three days of the announcement of “Liberation Day” and the tariffs associated with it.

This brings us to one of the main reasons for the rollercoaster ride: the Trump administration's flip-flopping on tariffs. In addition, Trump's repeated negative comments about the Fed's policy (“Too-Late Powell”) did not exactly help to calm the markets. Yields on 10Y and 30Y US Treasury bonds reached dizzying heights of 4.8% and 5.15%, respectively. Our fund was among those unable to escape this difficult market environment and has recorded a loss of 3.6% in USD (or a loss of 11.5% in EUR) in the year to date (as of 2 July 2025).

 

How did you position yourself in this environment?

During the first half of the year, we made our allocation significantly more defensive in response to the US trade policy. Whereas at the beginning of the year we were still heavily weighted in technology, financials, and the industrial sector, we have now reduced these weightings noticeably. Communications services are currently heavily weighted, followed by technology, and healthcare. What initially looks like a fairly cyclical orientation turns out to be somewhat more defensive on closer inspection.

We have therefore also increased our exposure to the defensive consumer sector. In addition to Netflix, Alphabet, and Spotify, the communications services sector also includes telecommunications companies (AT&T and T-Mobile US), which are considered defensive. We have completely divested ourselves of cyclical clothing companies GAP and Lululemon, among others. The smouldering trade conflict and a potentially cooling US economy currently suggest a stance against these companies. Once again, the first half of the year was negative for equities in the clean tech sector (N.B. renewable energy). We had already reduced our weighting significantly in the course of last year, but have now sold another share from this segment, Fluence Energy, in its entirety. As a result, our weighting in this segment is now in the very low single-digit percentage range of the fund’s assets under management.

Please note: the companies listed here have been selected as examples and do not constitute any form of investment recommendation.

 

What do you expect for the second half?

We also expect the equity market environment in the USA to remain challenging in the second half of 2025. The ongoing trade dispute could prove to be an occasional stumbling block. Potential tariff increases are likely to push up inflation, although weaker economic growth and lower oil prices could offset the inflationary risks. That being said, the emerging upside risks for inflation are likely to prevent the Fed from cutting key-lending rates as a preventive measure. It is currently difficult to predict how the trade conflict will develop – whether it will normalise or escalate completely, particularly with China. Overall, however, we expect a volatile sideways movement.

 

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

We already took a more defensive stance in our portfolio in the first half of the year in order to be prepared for further market turbulence. In the technology sector though, companies should continue to benefit from the megatrends of automation, artificial intelligence, cybersecurity, robotics, and cloud/data centres. In addition, we believe we are well positioned with our investments in Netflix, Take Two Interactive, and Spotify, which should remain virtually unaffected by the tariff issue, especially as these companies continue to enjoy high growth rates in an expanding segment.

 

Please note: investing in securities involves risks as well as opportunities.

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