Challenging years for Raiffeisen-Nachhaltigkeit-Aktien

The equity markets were not for the faint of heart over the past two years. After a boom that lasted years, the theme of sustainability also entered into a new phase. But neither of these developments are cause for concern – on the contrary.

Last year then ended on a very positive note for equity investors after all thanks to a strong finish in the final quarter. Before that, however, the markets were hit by significant price volatility as recessions, interest rate hikes, and interest rate cuts were priced in and priced back out again numerous times. In addition, developments on the exchanges were divided: A select few, very big shares in both the USA and Europe saw substantial gains. Thanks to their high weighting, they also lifted up the main stock indices, while the vast majority of equities turned in comparatively modest or even negative performance.

The latter trend has started to change in recent months. The shares of many small and medium-sized enterprises have started significant recoveries. They were hit particularly hard by the rising capital market yields in 2022 and 2023. With the shift in interest rate policy that has been initiated or is imminent, this headwind has disappeared and may even be transformed into a tailwind in many cases.

The pronounced fears of recession for the USA that have prevailed for quite some time have now largely dissipated. More cyclical small and mid caps often suffered under these conditions more than the large, internationally active market heavyweights. Thus, positive impetus is increasingly coming from this direction, as well.

The financial markets are predominantly pricing in a monetary policy and economic scenario characterised by a “soft landing” for the economy without severe or longer-lasting recessions in the USA or the EU.

Positive outlook

Such a scenario is supportive for equities because retreating inflation rates and falling interest rates have a positive impact and the outlook for corporate earnings remains quite solid at the same time. Although it is by no means certain that a soft landing for the economy will materialise, as long as economic indicators do not signal development to the contrary, there is little reason to position oneself counter to these expectations. All in all, this translates to a positive base scenario at the moment, although it is important to keep an eye on the risk factors (for example, geopolitical risks or inflation and economic development that is not in line with the current forecast).

Raiffeisen-Nachhaltigkeit-Aktien: Adjustments to the investment strategy

Raiffeisen-Nachhaltigkeit-Aktien in principle invests with a focus on individual companies (bottom-up approach), whereas economic considerations (top-down approach) are of lesser importance in the management approach. This also applies to Raiffeisen-Nachhaltigkeit-Mix, which has a strategic equities allocation of 50%.

The fund management at Raiffeisen KAG is responding to the recent changes in market conditions by taking economic and monetary policy conditions into account to a greater degree in future. However, the focus on the state of the individual companies will certainly be retained. Likewise, the fund management increased the maximum weighting per individual security some time ago in order to be able invest to a higher degree in the shares of especially promising companies that also employ sustainable business practices. Naturally, this will be executed in a way that ensures that the fund portfolio remains sufficiently diversified.

Credibility is becoming a bigger focus for sustainable investments

After several boom years for sustainable investments, some fund providers have reduced their activities in this segment again and/or are experiencing capital outflows to some extent or another. In some cases, it became clear that certain providers had also just quickly jumped on the bandwagon with this theme because it was “in” at the time. And at the same time, merely alluding to sustainability is no longer enough by any means. It also has to be backed up with substance and credibility.

We see this as a healthy development. Nothing has changed with regard to the importance of responsible business practices and investment. Based on our observations, the majority of investors also see things this way. Our major sustainability funds, such as Raiffeisen-Nachhaltigkeit-Aktien and Raiffeisen-Nachhaltigkeit-Mix, have not seen any significant capital outflows overall, but rather have enjoyed constant interest from investors. We also see this as confirmation of our sustainability approach from our investors. At the same time, we are pleased that both Raiffeisen-Nachhaltigkeit-Aktien and Raiffeisen-Nachhaltigkeit-Mix as well as many of our other sustainability funds once again received the highest score for the coveted FNG* sustainability seal. However, we will not rest on our laurels here, but rather continue to develop our engagement activities with companies and the selection criteria for sustainable investments on an ongoing basis.

Equity markets offer opportunities, but also harbour risks

Along with offering solid potential returns, equity markets also harbour risks. The equity markets have been characterised by substantial price volatility in recent years, and this is expected to continue in the future, as well. Technological change appears to be more dynamic than ever. It is driving growth, but can also very quickly disrupt or destroy companies’ market positions. Intense competition can lead to oversaturation of the markets and subsequently to declining corporate earnings and stock prices. Regulatory interventions can significantly change the business environment.

The fund Raiffeisen-Nachhaltigkeit-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.

* FNG stands for Forum Nachhaltige Geldanlagen