Tareno Global Water Solutions Fund in September

Water Fund Report

September 2024

On a slow boat to China

September is tradi­tio­nally a weak month for stock markets, and this year began no differ­ently. However, markets quickly rebounded after the Federal Reserve delivered a 50-basis-point rate cut, excee­ding the widely expected 25 basis points. Investors inter­preted this as a positive signal: the economy is performing well, and the Fed’s action was aimed at maintai­ning this momentum without falling behind the curve. This move also opened the door for other central banks to reduce their rates, with China surpri­sing the markets by intro­du­cing strong measures to bolster its stock market. Chinese equities surged signi­fi­cantly, and the positive impact was felt across global risk assets. In short, global stocks once again reached new highs.

The Tareno Global Water Solutions Fund delivered a solid perfor­mance of +2.02% in September and +18.45 for the year (W‑EUR tranche).

Our month in water

September is an important month for us, with several oppor­tu­ni­ties to engage with compa­nies within our universe. The “Janney Water Utili­ties Confe­rence” provided valuable insights from American Water­works, American States Water, California Water, York Water, and Essen­tial Utili­ties—all key holdings in our fund. We initiated a new position in California Water in September and remain confi­dent that the environ­ment for this group is still favourable.

Weather condi­tions in the third quarter ensured ample water supply, reducing costs that had been burden­some in previous years. M&A activity will continue to support growth, though on a smaller scale. York Water, for instance, mentioned that it is speci­fi­cally targe­ting smaller utili­ties strugg­ling with capital constraints due to PFAS-related expenses.

PFAS (per- and polyfluo­ro­alkyl substances) was a recur­ring theme in our discus­sions, as the water industry is at the forefront of efforts to remove these chemical compounds from ecosy­stems.

At the Kepler Cheuvreux Autumn Confe­rence, we recon­nected with several European compa­nies in our portfolio. We reintro­duced Aalberts to our fund after they provided a clear signal that their construc­tion business has bottomed out and is poised for growth. Like in the US, PFAS was a hot topic, and we’d like to highlight Arcadis in parti­cular. This Dutch company, opera­ting in the environ­mental consul­ting sector, has a strong water platform built on three pillars: Water Optimization, focused on lead pipe repla­ce­ment and storm­water infras­truc­ture; PFAS manage­ment, concen­t­ra­ting on ground­water treat­ment and advisory support; and Climate Adapt­ation, helping govern­ments protect water infras­truc­ture from climate change. Despite shares being up over 30% this year, Arcadis still trades at a signi­fi­cant discount to peers like Tetra Tech or WSP, which we view as unjusti­fied given the robust demand for their solutions from both public and private clients. Incre­a­sing govern­ment invest­ment is expected to further support their market position.

All eyes on geopo­li­tics

By the time our next newsletter reaches your inbox, we (hopefully) will know the next presi­dent of the United States. Until then, there is plenty of room for volati­lity, given the current geopo­li­tical backdrop. With the upcoming earnings season in sight, we remain optimi­stic yet vigilant.

Best regards,

Stefan Schütz

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