Hannes Loacker, specialist in the "Developed Markets Equities" team at Raiffeisen Capital Management, in an interview with fondsexklusiv.at on 6 July, issue 02/2022:
FONDS exklusiv: Energy production and supply is one of the global megatopics. Why did you broaden your range of fund products to include a second energy fund about two years ago?
Hannes Loacker: In mid-2019, Raiffeisen KAG decided to orient the entire range of funds more strongly towards sustainability. We started with energy. First, Raiffeisen-Energie-Aktien was transformed, to the extent that investment was limited to oil and gas companies which have clearly embarked on the path of green transition.
At the same time, we sold off our equities in shale oil and shale gas producers, despite the potential gains. We also invested one quarter of the fund volume in companies that are active in renewable energy. As it was already clear back then that large amounts of capital would be flowing into this sector during the energy transition, we also created the fund Raiffeisen-SmartEnergy-ESG-Aktien.
The roll-out of the European Union’s Green Deal just a few months later confirmed that this was the right move. To a great extent, the topics in the Green Deal align with the main topics in Raiffeisen-SmartEnergy-ESG-Aktien.
What are these topics and how do you cover them in the fund’s portfolio?
The topics are renewable energy, green mobility, the renovation wave, and hydrogen, and we cover the entire range in these topics. Specifically, this means that almost 50 per cent of the fund volume is invested in companies operating in the fields of wind, solar, and hydro energy. Around 25 per cent is allocated to the sectors energy management, transport, and e-mobility. In the field of energy efficiency, including green buildings, the investment level amounts to 16 per cent, and 6 per cent is invested in the sector of the circular economy. So far, the fund’s investment in companies focusing on the topics of energy storage and energy distribution, including so-called smart grids, i.e. intelligent power networks, only amounts to 5 per cent.
Why are two semi-conductor equities included in the Top 10?
The higher the degree of electrification in an automobile, the higher the share of semi-conductors that are installed in the vehicle. So, these two stocks – infineon and onsemi – profit strongly from e-mobility. The shares of turnover here reach up to 40 per cent and are thus substantially higher than our minimum requirement of 25 per cent.
The fund is tech-friendly. Doesn’t this lead to concentration risks, especially in light of the latest developments on the markets?
No. And there are two reasons for this: Our share in information technology (IT) amounts to 24 per cent. But about one half of this is comprised of companies that are active in very different business areas. Some examples include First Solar, a manufacturer of thin film PV modules; Flat Glass, a company that produces glass for PV modules; Landis and Itron, both of which make intelligent metering systems, so-called smart meters; and SolarEdge, which manufactures converters and battery systems. This reflects how broad the diversification within the IT sector is. Secondly, a look at other funds in our peer group shows that some of them have IT weightings that are three to four times higher.
The fund has the letters ESG in its name. How do you determine the ESG quality of the companies in the portfolio?
Every company in our fund has to have a score of 50 on a scale of 1 to 100 for our Raiffeisen ESG indicator. The overall score for Raiffeisen-SmartEnergy-ESG-Aktien is 77, which is one of the highest for our range of fund products. In determining the ESG score, we rely on internal research, external rating agencies, and the United Nations’ Sustainable Development Goals.
Do you also measure the CO2 footprint of the fund portfolio?
Yes, we measure the CO2 footprint per million euros invested, based on data from MSCI ESG, with which we can cover about 93 per cent of the portfolio. Suitable quality data is still not available for all of the companies, but the situation is improving tangibly. With a CO2 footprint of 63 tonnes of CO2 per invested million, the fund portfolio shows a CO2 footprint that is just one tenth the size of that measured for the global energy index, the MSCI World Energy All Country. In this measurement, we look at direct emissions in the value chain based on Scope 1 and 2, and indirect emissions based on Scope 3. The company does not have any direct influence over the latter, as these emissions are caused by the purchase of products and sales of the finished goods. In this regard, we are also have some significantly lower figures compared to the index.
Is there a CO2 reduction target for the fund?
Yes, our goal is to lower the fund’s CO2 footprint every year. In 2021, however, this was not possible, as emissions in the previous year generally declined sharply, due to the pandemic-induced downturn in economic activity.
Indeed. And to what extent are social and governance criteria also taken into consideration?
The focus for this fund is destined to be on the “E”, i.e. the environment. That said, it is true that social and governance aspects are also becoming increasingly important in the regulatory frameworks, and these aspects are reflected in the fund. For instance, if a name in the portfolio is linked to corruption, this triggers an internal review, which can have consequences ranging up to exclusion from the fund. One current example is the car manufacturer Tesla: due to some labour-related improprieties, our funds have not been allowed to invest in this company in the last couple of years. We proceed similarly in the fields of the fossil fuels natural gas, oil, and coal, as well as with nuclear power. Companies included in Raiffeisen-SmartEnergy-ESG-Aktien may not have any turnover related to the promotion or production of these energy sources. Additionally, social and governance requirements – ranging from workplace safety to equality issues – are a key focus of our shareholder engagement activities, in particular within the framework of our corporate dialogues.
A look at the price performance shows that the fund is having a tough time living up to its potential after the first year. Why is that?
Raiffeisen-SmartEnergy-ESG-Aktien mainly invests in growth shares. For the last 12 to 18 months, the capital markets have gradually been pricing in expectations of interest rate hikes, due to the rising inflation. Consequently, many growth companies are facing headwinds in terms of valuations, as this makes it more expensive to access external capital. Additionally, for some companies in the renewable energy sector, especially in wind power, there have been profit warnings that have dragged down prices, because it has not been possible to pass on the massive increases in material costs as necessary. Nevertheless, one should bear in mind that pure indices from the field of renewable energy, such as the MSCI Global Alternative Energy Index and the S&P Global Clean Energy Index, suffered sharp losses in 2021, often ranging between 15 and 25 per cent, whereas our much more broadly diversified fund managed to post a gain of almost 10 per cent.
www.fondsexklusiv.at on 6 July 2022, issue 02/2022
photo: Roland Rudolph
Raiffeisen ESG Indicator: Raiffeisen KAG continually analyses companies and countries with the help of internal and external research providers, as of 30 June 2022. Together with an overall ESG assessment including an ESG risk assessment, the results of the sustainability research are converted into the so-called Raiffeisen ESG Indicator. The Raiffeisen ESG Indicator is based on a scale of 0-100. The assessment is made in consideration of each company’s respective branch of business.
Notes:
The investment strategy permits the Raiffeisen-Energie-Aktien to predominantly (relative to the associated risk) invest in derivatives. The funds Raiffeisen-SmartEnergy-ESG-Aktien and Raiffeisen-Energie-Aktien exhibit 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.