Equity markets: several major names leading the recovery
The rebound for the fund, as well as for the major US equity indices since end-2022, has mainly been driven by big tech sector names. In this context, the media coined the phrase of the “Magnificent 7” (Apple, Nvidia, Microsoft, Alphabet, Meta, Tesla). Raiffeisen-MegaTrends-ESG-Aktien was also invested in a large number of these rapidly climbing shares, for example Alphabet, Nvidia, Apple, and Microsoft. But pharmaceutical names including Novo Nordisk (which recently became the new leader in terms of market capitalisation in Europe) and Eli Lilly were also among the big winners in the fund.
Corporate earnings driving share prices
Generally speaking, in recent quarters company-specific topics and the corporate earnings trend were the factor behind the share price development of certain equities to a relatively large degree, while economic factors (such as inflation, interest rates, and the business cycle) were less important.
At the moment, conditions remain difficult for many companies from the areas of renewable energy, such as wind power, solar, and hydrogen. The sharp rise in capital market rates has generated significant pressure on the profitability of many projects in this sector. Additionally, many companies in this field are still posting losses and the value of any future profits is declining in parallel with the rising interest rates. A number of equities in these sectors have thus suffered from painful downward corrections.
Impact assessment: The impact is calculated annually by Raiffeisen KAG.* The data shown relates to the companies in the Raiffeisen-MegaTrends-ESG-Aktien compared with the whole market.
Source: Raiffeisen KAG, own calculation, as of 28 June 2024.
A good mix of multiple megatrends
This highlights one of the strengths of the fund concept behind Raiffeisen-MegaTrends-ESG-Aktien:
The fact that the fund management is focusing on three major megatrends(climate change, demographic change, and technological change) and also on various subordinated trends within these three themes means that temporary price declines in some areas can be offset by other segments that are enjoying particularly good performance. For example, companies from the theme areas cloud computing, artificial intelligence, the “ageing society”, and “work-life balance” have exhibited very strong price trends this year.
USA: continued growth or a recession?
Almost 50% of Raiffeisen-MegaTrends-ESG-Aktien is currently invested in US companies. In light of this and the general significance of the USA for global economic performance and the global financial markets, monetary policy in the USA has a substantial impact not only on US economic performance but also the performance of the fund. From the current vantage point, the investment specialists at Raiffeisen KAG are optimistic that the USA will be able to avoid a recession in 2024, and thus also have a positive opinion on the performance of many companies. That said, interest rates and bond yields in the USA will still remain at relatively high levels for a long period of time (at least compared with the past decade). However, Raiffeisen KAG is expecting the first interest rate cuts in the USA this year, which should be good for the equity markets.
Megatrends buck economic cycles
Looking at megatrends such as artificial intelligence or demographic change, it is quite clear that many of the topics within the megatrend themes are relatively independent from economic cycles. Of course, this should not be taken to mean that they are completely invulnerable to fluctuations in the economy or general capital market trends. However, the share price volatility caused by such factors is generally temporary in nature and cannot halt or delay the underlying fundamental developments in these megatrends.
The fund has delivered good performance again for the year to date and should continue to profit from the long-term growth potential of the megatrends. The largest positions in Raiffeisen-MegaTrends-ESG-Aktien at present include names such as Alphabet, Novo Nordisk, Nvidia, AMD, Prysmian, Motorola Solutions, and Waste Management.
Brief portrait of Raiffeisen-MegaTrends-ESG-Aktien: Fund manager Günther Schmitt gives an overview of the fund, the companies it invests in and who might be interested in the fund in the video.
Full potential only unfolds over the long term
Investors need patience, because – by nature – megatrends progress slowly and thus only exhibit their full potential over a longer time frame. Consequently, in order to achieve the best possible returns it is important to have an adequately long investment horizon and patience for the long run, in order to outlast the weak phases on the markets that are always bound to occur at times.
The fund Raiffeisen-MegaTrends-ESG-Aktien 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.
*In order to calculate the effect of sustainable equity investments in the fund, we used the sustainability ratios of the companies found in their sustainability reporting. CO2 emissions are generally denoted in tons of carbon dioxide equivalents (CO2e), work accidents in lost-time-
injury-rate, waste in tons and water consumption in m3. The key ratios for the individual companies were multiplied by their weight in the fund or in the overall market, and the results of each key ratio were compared. Currently, we do not calculate such ratios for the bond segment of the funds, as we think that the "sustainable footprint" is attributable to the company owners, i.e. shareholders, not to the creditors, i.e. bond holders.