„We invest in the most responsible companies with the greatest future viability"

Fund manager Thomas Motsch

In an interview with Austria's leading financial portal BÖRSE EXPRESS on the Raiffeisen-Nachhaltigkeit-Wachstum fund, the US dollar as a source of returns, and how he defines the quality of a company.

Raiffeisen-Nachhaltigkeit-Wachstum – what does the “Wachstum” or growth stand for?

Thomas Motsch: We offer our clients three different options in our product range for sustainable mixed funds, depending on their risk tolerance. While the Raiffeisen-Nachhaltigkeit-Solide fund represents a rather conservative product with a lower equities allocation of around 20%, the Raiffeisen-Nachhaltigkeit-Mix fund is a balanced product with roughly 50% equities and 50% bonds. With an equities allocation of around 75%, the Raiffeisen-Nachhaltigkeit-Wachstum fund is our product with the highest risk profile within the range of mixed funds. We expect attractive growth for the investment over the long term due to the high equities allocation.

In other words, you are aiming towards a kind of total return fund, but without calling it that by name?

In the long run, we are striving for a return that is oriented towards the global equity markets. The bond portion of around 25% is intended to provide some support on the downside and to increase diversification for the fund. In market phases with negative equity market performances, the fund will therefore not be able to insulate itself from these developments.

Would you say that the Raiffeisen-Nachhaltigkeit-Wachstum fund could also serve as an introduction to the equity market for savings account holders, or is slightly more experience with capital markets required?

For people who have stuck to savings accounts up to now, the Raiffeisen-Nachhaltigkeit-Wachstum fund can be a first step in the form of a savings plan. In this case, fluctuations are balanced out thanks to the different purchasing times. Presumably, however, a mixed fund with a lower equities allocation would also be a good introduction in order to get used to the volatility of the capital markets.

Let’s talk about your investments in the fund: You are required to invest at least 51% of the capital in equities, according to the statutes. Currently, this figure is at about 70%. The fund has now been in existence for around two years. How much has this 70% level varied on average, and why have you now chosen this weighting?

We try to keep the weighting of the asset classes in the fund relatively constant. The equities allocation is usually 70–75%. In our view, this weighting is ideal for investors with a high risk appetite who do not wish to invest in pure equity funds, yet still want to participate heavily in the development of the equity market.

Your equity portfolio is widely diversified. The top position has a portfolio weighting of less than 1.5%. Are there so many good ideas out there? Should this be seen as risk diversification? And how are the equities selected?

The equities we invest in are a reflection of our global sustainable equity strategy. We select the companies for our global strategy very carefully, and then weight these in the sustainable mixed funds according to the given equities allocation. Altogether, we have between 80 and 100 names in the equity portfolio. This is intended to serve the purpose of risk diversification.

Briefly describing the equities ratio of your portfolio: Tell us what approach you follow and what world view is behind it.

We invest in the most responsible companies with the greatest future viability. In this context, assessing the sustainability and the financial viability are equally important. From a style perspective, we consider ourselves to be blend investors. We therefore have no particular focus on especially cheap equities. There is often also a good reason for the cheap valuation. But we also do not focus on the highest growth rates. These companies are often not making a profit yet. Instead, we focus largely on the quality of the particular company – in other words, on relatively stable earnings, an experienced management team, and a high degree of sustainability.

Is this world view also reflected in the composition of the bond portion of the portfolio, or are other influencing factors involved there?

The bond portion clearly also meets our sustainability criteria – although the focuses for sovereigns are different to those for corporates – and is intended to yield widely diversified returns from US dollar and euro interest rates without excessive credit risk. Consequently, the portfolio is dominated by euro government bonds and, in the case of the US dollar, state-affiliated issuers. Surplus returns are generated by a sub-fund, which in turn invests in investment grade and sometimes also high yield corporate bonds as well as in bonds from Emerging Markets or in their currencies up to a maximum of 20% of the bond portion.

Do you primarily view the bond portion as a stabiliser within the portfolio or as a generator of returns? Based on the high average rating for the bonds that are held, at least, it seems to be the former…

The bonds mainly serve as a stabiliser. However, they do also incorporate positive aspects with regard to returns due to the generally higher dollar interest rates and the accompanying unhedged dollar position. The overall risk of the fund is largely determined by the equities and the unhedged US dollar position.

The very short remaining term of the bonds is quite noticeable. This usually serves to offset expected yield increases. How do you view the future yield landscape? Are we possibly approaching a point in time in which one should lock in the current yield levels for the future by making purchases?

The moderate remaining term of the bonds is in part due to the still low yield level, especially in Europe. An upwards adjustment is absolutely possible in the future. But it doesn’t seem to be the right moment for this yet.

About half of the portfolio is invested in US dollar securities. Are the currency risks hedged, accepted, or actively utilised as a source of returns?

The US dollar positions are not hedged, but are instead viewed as a positive source of returns.

I should invest in the fund today rather than tomorrow because…

...sustainable equities investments with a stable bond anchor are a highly attractive investment combination.

Interview from 10 May 2022 by Börse Express

Notes:

The Raiffeisen-Nachhaltigkeit-Wachstum exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time and it is not possible to rule out loss of capital. The Fund Regulations of the Raiffeisen-Nachhaltigkeit-Solide have been approved by the FMA. The fund fund may invest more than 35 % of its volume in bonds of the following issuers: France, Netherlands, Austria, Belgium, Finland, Germany.