Longstanding expertise and sustainability come together

With a modified focus on Central and Eastern European countries that offer high growth but are more stable in political and economic terms, on dynamic sectors and companies, and with a consistent sustainability concept, the fund is looking to continue its roughly thirty-year success story. Following a weak year in 2022, the region’s equity markets are enjoying a strong uptrend this year. Despite the possibility of short-term corrections, the fund management is looking ahead to the coming years with a great deal of optimism.

Robust recovery for stock prices

The equity markets in the region have left last year’s weak performance behind them and entered into a robust recovery this year, often with gains of 15 to 20%. Most stock indices are now already above the levels they had reached immediately before the start of the Ukraine war. Many people did not expect this to happen until after the conflict in Ukraine comes to an end. It is no wonder that valuations are no longer quite as attractive as they were at the end of last year.

At the same time, however, this does not at all mean that these markets are “expensive”. The most important valuation metrics are still well below their historical averages. Naturally, this can and is only intended to serve as general guidance. After all, Raiffeisen-Zentraleuropa-ESG-Aktien does not invest in averages or indices, but in individual companies that are selected based on their financial position and growth potential and according to strict sustainability criteria.

Country universe

In the future, the fund will concentrate on the countries of Central Europe, with a focus on the economically successful, politically stable countries. Investments are mainly made in equities issued by companies which are domiciled or primarily active in Poland, Austria, Hungary, Czechia, Romania, Slovakia, Slovenia, Croatia, Lithuania, Latvia, and Estonia. Companies that are domiciled outside of these countries are also eligible for investment, provided that they do a significant amount of their business in the region.

The expertise for the countries of Central and Eastern Europe that has been built up over decades and the continuity of the fund management team that is responsible for Raiffeisen-Zentraleuropa-ESG-Aktien are valuable factors for the restructuring of the fund.

Better diversification and leveraging of longstanding sustainability expertise

The change in the country universe allows for better diversification of the fund assets. Thanks to this and the lack of investments in Russia, Türkiye, and Greece, the fund’s performance will presumably exhibit less volatility than in the past. While this is highly likely, it cannot be guaranteed of course.

At the moment, the possible investment universe encompasses around 150 enterprises. However, only just under half of them will be able to be included in the fund portfolio for the foreseeable future because quite strict ESG criteria are now being applied when selecting stocks. Social aspects, environmental aspects, and the approach to corporate governance are taken into account. In this context, the fund leverages the proven, award-winning sustainability expertise of Raiffeisen KAG. The fact that certain minimum ESG metrics are targeted for individual companies and for the fund portfolio as a whole (average value) reduces the investment universe to around 70 stocks at present.

The UN Sustainable Development Goals are also taken into consideration with regard to the sustainability theme. Fundamentally speaking, there is no investment in companies that are active in the arms industry, that violate labour or human rights, that generate their revenue from the production or extraction of coal, or that generate a substantial portion of their revenue from the processing and use of coal or other related services. (Read more about our principles and policies)

A growth region on the rise and in a period of upheaval

Despite the economic disruption during the pandemic and the war in Ukraine, as a region, Central and Eastern Europe is on a positive development trajectory, with economic growth rates that are roughly twice as high as they are in the “old” EU countries. The trend towards convergence remains fully intact, for instance with regard to the gradual approximation to Western European income levels. The region also profits strongly from high levels of EU financial aid.

The process of economic convergence will presumably benefit the banking sector, consumer goods, infrastructure, and construction in particular. Another strongly up-and-coming segment that represents a particular focus for the fund management are technology companies, which are increasingly establishing themselves in the region. On one hand, the number of new, emerging companies from the individual countries in this segment is growing. On the other hand, global players are making substantial investments in fields such as microchips, semiconductors, and batteries in Central Europe, along with the traditional industries (food, machine building, automotive industry). These companies would not make these investments if they did not believe that the region offers solid long-term earnings potential.

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The fund 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.