The ERSTE FUTURE INVEST is an actively managed, global equity fund that invests in mega trends, i.e. future-oriented themes, in one or more of the following trends: healthcare and provisions for retirement, lifestyle, technology and innovation, environment, clean energy, and emerging markets.
Turbulent first half year on the markets
The sentiment on the equity and bond markets was clearly down in the first half of 2022. Numerous factors are driving the current affairs at the moment. For example, inflation has increased significantly since the end of last year, which led the central banks like the Federal Reserve in the USA and the European Central Bank (ECB) to take action. In reaction to the drastic increase in inflation, the central banks tightened their monetary policy and heralded the end of low interest rates. The Ukraine war and increasing geopolitical tensions are also burdening share and bond prices.
The situation created by these three factors has increasingly led to concerns about economic growth, which is also reflected in the economic data. The development of the market environment in the second half of 2022 should therefore depend crucially on the path of inflation. Due to strong base effects, experts suggest that inflation might peak in autumn. The development of the Ukraine war from here on out will also remain an uncertainty factor for the rest of the year. Given this context, the risk of a recession is particularly high in Europe at this point in time.
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In the exclusive interview below about the first half of 2022, fund manager Bernhard Selinger talks about his assessment of the YTD performance of the fund and his outlook for the coming months.
Interview with fund manager Bernhard Selinger
What sort of performance did the fund achieve in the first half of 2022?
To answer this question, I have to set a wider context: we could call 2020 “the online year”. The new and extraordinary situation created by the pandemic acted as trend accelerator for all things digital (e.g. online commerce, streaming, video communication) and graced these areas with outstanding rates of growth. At hindsight, both stock exchange and analysts were too optimistic, extrapolating the growth rates from the exceptional year of 2020 into the future.
The “offline sectors” and their shares spent the year 2021 closing the gap. All of us wanted to experience things again that had not been possible for a while, e.g. go shopping in brick and mortar shops, eat out, or travel. Many of our newly established digital habits were here to stay (e.g. online commerce, streaming), even though the growth rates in many areas failed to reach the levels of 2020.
The market therefore had to revise its growth expectations for many technology companies from excessive to sustainably realistic, which caused pressure on prices and valuations.
In addition, the market had to deal with general worries about economic growth in 2022 on account of the interest rate reversal resulting from the strong inflation momentum, ongoing supply chain problems in the corporate sector, and the turbulences caused by the conflict between Russia and Ukraine.
The expected interest rate increases had a particularly negative impact on the growth shares in the fund, because from a valuation perspective their future earnings were suddenly being discounted at a higher rate. The effects on operations themselves are limited for technology companies, not the least as they are generally not highly leveraged and have sufficient liquidity for investments at their disposal.
„At hindsight, both stock exchange and analysts were too optimistic, extrapolating the growth rates from the exceptional year of 2020 into the future.”
Bernhard Selinger, fund manager ERSTE FUTURE INVEST
How is ERSTE FUTURE INVEST currently positioned? What is your focus in this fund?
The focal points of the fund follow our mega trends as manifested, in terms of themes, by healthcare, technology, environment, lifestyle, and transformation of economic forces. In technology for example, one of the most important and long-term mega trends is digitalisation.
We continuously adjust our exposure and buy opportunistically in the event of markets overshooting. At the moment for example, we can see a clearly positive contribution from Chinese equities in the portfolio, supported by falling new infection rates (covid) and looser restrictions as well as signals suggesting a further rapprochement between technology groups and the government.
What is the outlook for the fund in the coming months?
The times are definitely challenging on the equity markets. As global equity fund, ERSTE FUTURE INVEST cannot skirt this market volatility. But due to our long-term horizon, weaknesses often translate into opportunities to invest.
The underlying idea of the fund remains valid: we invest broadly in long-term mega trends, with our stock selection based on fundamental research.
The most important mega trends such as demographics, digitalisation, and environment will remain with us for decades. The companies in the fund remain well-positioned within these mega trends, benefiting from the long-term growth of said trends.
Performance chart since fund inception
Important legal note:
Due to the very short term, this presentation of the performance is not very meaningful.