Erste AM outlook 2024

• Almost all asset classes performed positively in 2023
• Return to “normal” driven by comeback of bonds
• Erste AM posted double-digit increase in assets under management

Please note that investing in securities involves risks as well as opportunities.

Despite mixed developments on the global financial markets and high geopolitical risks, the experts at Erste Asset Management have drawn a positive conclusion from the 2023 investment year. “Most asset classes closed in clearly positive territory, with only a few recording losses. The investment results ranged from plus 50% to minus 10%,” says Chief Investment Officer, Gerold Permoser, expressing his satisfaction with the result. The performance of technology funds was particularly positive, achieving gains of almost 50% to date. The performance was driven by the Magnificent Seven, the major technology companies such as Apple, Microsoft, and others. At the other end of the spectrum were shares from China and Hong Kong, which disappointed despite the opening of the country following the coronavirus situation.

Double-digit gains almost a normal scenario for equity funds in 2023

In general, double-digit percentage value increases of Erste Asset Management's equity funds were the norm rather than the exception this year. In the bond segment, corporate bond funds achieved the best performance with an increase in value of up to 7.4%, depending on the credit rating (i.e. investment grade or high-yield) (source Erste AM: as of 1 December 2023). Erste AM's mixed funds also performed well with results in a range of 6 to 9%. “All in all, 2023 was a positive year for investors, especially as funds are increasingly successful when it comes to beating inflation and achieving real returns,” says Permoser.

Erste AM is confident about the prospects for the US election year of 2024, although the economic indicators suggest a significant slowdown in the major target markets of the USA, Europe, and China. Many of the economic fears are already priced in on the markets, the valuations of equities with the exception of the major technology companies are moderate to favourable, and bonds can once again play to their strengths, as Permoser pointed out at the Erste AM press conference on the capital market outlook for 2024. “We do not expect a severe recession in the USA, nor do we currently see anything in other parts of the world that could shake the market.” The bitterly fought geopolitical conflicts cast a sad picture on the players and brought suffering to many people, but there was also hope that these conflicts and wars would come to an end the longer they continued, said Permoser.

Inflation decreasing towards target

Inflation continues to decline, even if it will not yet reach the central banks' target of 2% next year due to wage agreements. The market is now pricing in interest rate cuts in the USA. In Europe, the ECB is likely to hold steady for a little longer or largely stick to the current level. Permoser: “The increased bond yields are back at attractive levels and offer a buffer, should yields rise again.” According to Permoser, we can speak of a return to normality, which gives fund managers in actively managed funds, especially mixed funds, considerably more room for manoeuvre again.

Despite the recent price rises, shares are not expensive per se. Apart from the technology sector, most sectors have only now begun to catch up. Erste AM therefore sees potential in broadly diversified global equity funds, but also in thematic funds such as the environmental and new energy equity funds, which have been badly hit this year.

Erste AM boosts assets under management by more than 10% and is optimistic about 2024

Heinz Bednar, CEO of Erste Asset Management, is satisfied with the business performance in 2023. The largest Austrian fund and asset management company with branch offices in six Central European countries managed to increase assets under management by 10.5% to EUR 75.6bn as compared to the end of 2022 (as of the end of November 2023, source: own data) despite the heterogeneous development on the capital markets. These statistics include Austria as well as significant inflows of funds at Erste AM's subsidiaries in the Czech Republic and Hungary. Investment funds in bonds with short-term fixed interest rates are particularly in demand there.

Funds with a sustainable focus are again on an upward trend in 2023. The volume of sustainable funds categorised under Articles 8 and 9 of the EU Disclosure Regulation at Erste AM amounts to EUR 15.7bn (data as of the end of October). Bednar: “Sustainable investments have experienced remarkable momentum in recent years and are now in demand across all age groups.” The number of Erste AM funds bearing the Austrian Ecolabel has risen to 19.  17 funds were recently awarded the highest rating by Forum Nachhaltige Geldanlagen (Forum for Sustainable Investments; FNG). Erste AM CEO Bednar expects this trend to continue in 2024 and beyond, especially as the large capital collection centres such as pension funds and insurance companies are also attaching more and more importance to sustainable investments.

Unlike in previous years, the focus of investors in 2023 will no longer be solely on riskier asset classes such as equities or thematic funds in the technology and environmental sectors. The central banks' turnaround in interest rates and the subsequent rise in bond yields offer new opportunities for returns, both in government and corporate bonds. "The risk/reward ratio is right again if we can offer average yields of over 4% with funds," as Bednar explains. The latest sales figures also show that these products are in demand on the market: so far, share units worth just under EUR 120mn have been subscribed in the six Erste AM fixed-term funds issued this year (source: Erste AM as of 28 November 2023).