Interview with fund manager Bernd Kiegler about Raiffeisen-HighTech-ESG-Aktien

"Barriers to entry are therefore one of the most important criteria in my investment decisions."

How would you describe the philosophy behind the Raiffeisen HighTech ESG Equities fund, or your recipe for success?

Bernd Kiegler: I favour investments in groundbreaking, disruptive technologies and business models that offer sustained potential for high revenue and profit growth. Apart from financial and economic indicators, a crucial factor for me is whether the companies in question can achieve or maintain a strong market position in the long term. This, in turn, is all the more likely the higher and more enduring the barriers to entry are for potential competitors. Barriers to entry are therefore one of the most important criteria in my investment decisions.

Can you illustrate this with an example?

Certainly. The Dutch company ASML, for example, holds a global monopoly on the manufacture of EUV lithography systems, which are essential for producing the world’s most advanced microchips. A single EUV machine consists of over 100,000 components from more than 5,000 suppliers. Developing this technology took over 30 years and consumed billions in research spending. At the same time, ASML controls a unique ecosystem of highly specialised suppliers who work exclusively for ASML. A competitor would not only have to develop the technology but also build such a supply chain from scratch. And even then, they would still lack decades of experience in calibrating and maintaining these precision instruments. This is an extreme example of barriers to entry in the technology sector. However, none are likely to be completely insurmountable or built to last forever, not even in this case.

Does that mean you are also constantly monitoring whether these barriers to entry still exist?

Yes, that is essential. When I say that I like to invest in technologies that render old business models and products obsolete, these disruptive technologies often also dismantle existing barriers to entry for other companies. Continuously engaging with these questions therefore has the advantage that, on the one hand, one discovers new investment candidates whilst, at the same time, thoroughly scrutinising existing investments.

That naturally raises a question regarding "artificial intelligence" and its impact on many companies, including those in the technology sector?

Indeed. Developments in the field of AI open up enormous potential for disruption across almost all sectors, and they also threaten business models that were considered virtually untouchable and forward-looking just a few years ago. For example, it was not so long ago that many believed that "software will eat the world". Whilst that was an exaggeration, there was a certain truth to it. Think of Amazon and the bookstores, Airbnb and hotels, Spotify and iTunes and the traditional music business. Today, however, one reads everywhere that AI might ‘eat’ the software industry.

This has recently led to sharp drops in the share prices of many software companies. How are you responding to this?

In principle, I naturally prefer to act rather than react. In this case, I can say that I spotted the risks several years ago and gradually reduced the software holdings in the fund’s portfolio. The Raiffeisen HighTech ESG Equities was therefore almost completely spared the decline in software share prices over the past few months.

Why did others apparently only realise late what you had recognised much earlier?

Since I am not familiar with the analysis and decision-making processes of competitors in detail, you would have to ask others that question. But as far as I am concerned, I regard the analysis of potential disruptions and barriers to entry as both a science and an art. On the one hand, it requires excellent industry knowledge, a deep understanding of products and business models, and, of course, the analysis of financial metrics. But it also requires imagination and intuition. The latter, incidentally, is something that AI will not be able to replace any time soon, even though it has become very helpful with the "scientific" part.

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Raiffeisen-HighTech-ESG-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.