The ERSTE WWF STOCK ENVIRONMENT invests globally in companies from the environmental technology sector. The investment process of the fund is based on fundamental company research. Stock selection focuses on companies in water treatment and supply, recycling and waste management, renewable energy, energy efficiency and mobility
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 Clemens Klein talks about his assessment of the YTD performance of the fund and his outlook for the coming months.
Interview with fund manager Clemens Klein
What sort of performance did the fund achieve in the first half of 2022?
In a difficult market environment, ERSTE WWF STOCK ENVIRONMENT also recorded a negative performance in the first half of 2022. This is mainly due to the rising interest rates, which were detrimental in particular to the growth segment among equities, which many of the companies in the fund belong to as well. Growth shares excel in terms of strong growth, but they also command higher valuations and often generate earnings far ahead in the future. As a result, higher interest rates – and thus, a higher discount factor – have a more negative impact on growth shares than on companies with lower valuations and slow growth.
Also, small caps were harder hit than blue chips. ERSTE WWF STOCK ENVIRONMENT is strongly invested in this segment as well. The war in Ukraine has drastically stepped up the urgency to switch to alternative sources of energy again, which in recent weeks has had a positive effect on many companies in our environmental funds.
How is ERSTE WWF STOCK ENVIRONMENT currently positioned? What is your focus in this fund?
We have used the recent months to get in touch with numerous companies in our portfolio and to talk about the current environment and the future prospects with the respective management teams. We have also selectively bought when prices were attractive and have further stepped up the weighting of renewable energies and energy efficiency. In doing so, we have put the focus on Europe and on companies with strong operations in Europe. We can see the biggest urgency for action and thus the highest growth potential here.
ERSTE WWF STOCK ENVIRONMENT currently puts a strong focus on energy. Close to 60% of the fund’s assets are invested in wind and solar power as well as energy efficiency. The sector is currently getting support in particular from the political front and from attractive valuations, amid sustainably strong demand. The turbulences in the supply chain remain a problem. We are also invested in waste management & recycling (13%), mobility (7%), water (7.5%), and energy storage (6%).
What is the outlook for the fund in the coming months?
The general macro-economic and market environment makes predictions difficult. That being said, we continue to regard renewable energies as highly positive. The interest in these forms of energy is driven by the fundamental strength of the respective technologies (N.B. wind and solar power remain the cheapest power sources; please refer to the chart) and by political will, especially in the EU. The RePower EU plan, for example, which has recently been proposed, calls for a target energy mix of 45% renewables by 2030 (after a target of 28% in 2018). The approval process of wind and solar projects is to be sped up massively, and sun collectors on roofs are to be subsidised even more significantly. In addition, the plan suggests creating a supply chain for green hydrogen. The expansion of heat pumps is to be subsidised in order to achieve independence from Russian gas as quickly as possible.
„The general macro-economic and market environment makes predictions difficult. That being said, we continue to regard renewable energies as highly positive.”
Clemens Klein, fund manager ERSTE WWF STOCK ENVIRONMENT
Renewable energies have a disinflationary effect in the current environment. If you own a solar heating system, a heat pump, a battery, and maybe an electric car, you are autonomous and independent of high electricity, gas, and diesel prices. These are all reasons to remain positive about the sector – we regard our segment and our fund, ERSTE WWF STOCK ENVIRONMENT, as well positioned in a difficult environment. The valuation levels are at a 5Y low, even though the political support (EU, USA, China) for sustainability has improved substantially.
Important legal note:
Past performance is not a reliable indicator of an investment’s future performance.