With the new mixed fund ERSTE OPPORTUNITIES MIX, investors can not only invest in long-term trends such as environmental protection or digitalisation, but also take advantage of short-term opportunities on the market. In this interview, Alexander Lechner, Head of Multi-Asset Management, reveals how this works and what is special about the fund’s investment strategy.
Please note that investing in securities involves risks as well as opportunities.
Can you explain the concept of ERSTE OPPORTUNITIES MIX in a few sentences?
It actually only takes one sentence to describe the fund: ERSTE OPPORTUNITIES MIX invests in promising themes and trends without being confined to one single asset class. In other words, we are launching a thematic multi-asset fund that firstly invests in long-term megatrends and secondly also makes use of short and medium-term themes and opportunities on the market. (Please note that investing in securities entails risks as well as opportunities).
Why does it make sense to invest in several asset classes for this and not just confine yourself to equities, for example?
Some themes and opportunities cannot be covered by a single asset class such as equities. In addition to equities, we also have bonds, commodities, currencies, and (listed) private market investments at our disposal. This clearly distinguishes ERSTE OPPORTUNITIES MIX from traditional megatrend funds, which can generally only invest in equities and therefore only cover themes that can benefit from rising equity markets. (Please note that investing in securities involves risks as well as opportunities).
On what long-term trends do you bet in the fund?
In terms of long-term trends, we are thinking primarily of four super-themes that we have identified:
- Measures to combat climate change and environmental protection
- Demographics
- Digitalisation
- global transformation.
We believe that companies (or their shares and bonds), countries, and commodities associated with these super-trends should perform well in the long term. We have also identified more than 50 sub-trends within these four super-trends. In our new fund, we will select those themes that we believe come with an attractive risk/return profile.
At the outset, you also talked about short and medium-term issues and opportunities. What do you mean by this?
The super-trends discussed so far have determined the long-term growth path of the global economy. In the following chart, this is symbolised by the pink line. Around this path is the medium-term economic cycle (blue line), which consists of recovery, boom, downturn, and recession.
Long-term growth and medium-term economic cycle. Source: Erste Asset Management
In addition to long-term themes, we will also invest in short and medium-term opportunities that emerge from the economic cycle. For example, promising investments generally command favourable valuations during a recession, while the opposite is the case during a boom. It may make sense to add cyclical equities from the financial or energy sector during the recovery phase. (Please note that investing in securities involves risks as well as opportunities).
What could investments in such short and medium-term topics look like in practice?
In the bond segment, Mexican government bonds could currently be interesting from a medium-term perspective. This is due to the fact that the interest rate cycle in the emerging markets is in a different phase than in the developed economies.
The so-called “fallen angels” also offer opportunities time and again. These are bonds issued by companies that have been downgraded from investment grade to high-yield. Although this means that the credit quality has deteriorated somewhat, it does not usually mean that the company is on the verge of bankruptcy.
In the event of a downgrade, many investors are forced to sell these bonds, for example fund managers of investment grade bond funds, but also banks and insurance companies. This leads to considerable selling pressure, which in turn pushes bond prices down. This creates attractive investment opportunities whose risk can be very attractive in relation to the financial outlay.
Companies that we would hold in the fund include Marks & Spencer and Royal Caribbean Cruises, an operator of cruise ships which has launched the largest of its kind this year.
Please note: the companies listed here have been selected as examples and do not constitute an investment recommendation.
You also mentioned private markets. What did you mean by that?
Private markets in their original form represent investments in assets that are not listed on a stock exchange. Given that financing via private markets has increased significantly in recent years, we can also consider this a megatrend. We also want to benefit from this in our new fund. It includes investments in established companies (private equity) or young, disruptive companies (venture capital). Another example are infrastructure investments, bridges, toll roads, but also network infrastructure for the internet or renewable energies.
For regulatory reasons, we are not allowed to invest in traditional private equity funds, but there are now a large number of exchange-traded investments that come in two forms:
- Closed-end funds that effect the investments as just described
- Shares in the asset managers who manage such funds and where you can participate in their success
What would the portfolio look like now? Where would you invest?
We currently hold around 70% in long-term investments and 30% in short and medium-term investments. The following chart provides an overview of the themes we hold in the fund:
Current portfolio of ERSTE OPPORTUNITIES MIX by theme and maturity. Source: Erste Asset Management
In addition, we have also “folded out” some of the topics and listed sample investments that would cover them:
Please note: where the portfolio positioning of funds is disclosed in this document, it is based on the status of the market development at the time the document was being prepared (14 May 2024). In the context of active management, the positionings in the portfolio mentioned may change at any time. The companies listed here have been selected as examples and do not constitute an investment recommendation. There is no guarantee that the respective security will be permanently included in the portfolio.
What about sustainability criteria in the fund?
We do take sustainability criteria into account for the fund. This is important to us, because in order to assess an investment holistically, it is also necessary to comprehensively assess the sustainability risks. The fund will be categorised as Article 8 pursuant to the Sustainable Finance Disclosure Regulation (SFDR) and will follow our in-house integration standard.
Notices ERSTE OPPORTUNITIES MIX
Warning notice according to the Austrian Investment Fund Act of 2011
ERSTE OPPORTUNITIES MIX may invest a significant portion of its assets under management in shares of investment funds (UCITS, UCI) as defined by sec 71 of the Austrian Investment Fund Act of 2011.
The fund pursues an active investment policy and does not follow a benchmark. The assets are selected at our discretion, without any constraints to the latitude of judgement on the investment company’s part. Please note that investing in securities also harbours risks in addition to the opportunities described above.
For further details on the sustainable strategy of ERSTE OPPORTUNITIES MIX and on the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector and the Taxonomy Regulation (Regulation (EU) 2020/852) please refer to the current prospectus, section 12 and the appendix, “Sustainability principles”. When deciding to invest in ERSTE OPPORTUNITIES MIX, please take into account all features and goals of ERSTE OPPORTUNITIES MIX as described in the fund documents.