Fund Manager Review January 2024
“Waiting for Godot”
After the robust rally in the final month of 2023, stock markets took a breather early in January, only to reach new highs on the back of strong tech earnings and expectations that the Federal Reserve might announce a reduction in interest rates (Godot?) early in the year. However, these anticipations were quashed when, at the January 31 meeting, Chairman Jerome Powell offered a more cautious outlook. Although he recognized improvements in employment and inflation towards a more favourable equilibrium, he asks Didi and Gogo to be patient. A rate cut in March is unlikely to be the primary scenario.
While developed markets enjoyed positive returns (the Topix Index in Japan stood out as January’s best-performing market), emerging markets faced steep declines, exacerbated by the robust US dollar. Leading the downturn, China experienced a 10% drop, marking it as Asia’s poorest-performing market for the month. The nation struggles with deflation, low consumer confidence, and an oversupply in its property sector. Moreover, the absence of a significant intervention from the Chinese government has left investors disenchanted.
The Tareno Global Water Solutions Fund posted a performance of -0.56% (W-Euro Tranche).
Our month in water: Mixed results from the sectors
Looking at regions and verticals in our universe, the picture is mixed. While like in the broader indices, Japan was the best performing region (primarily Ebara and Kuraray), the US were unlike the broad indices a drag on performance. Most of the downside came from US utilities. They faced selling pressure (American States Water, American Waterworks) as interest rates started to move higher again. Nothing fundamental here, just pure momentum. The strong performance of European utilities (Veolia, ACEA, United Utilities and Severn Trent) was more than offset by weak performances in the construction vertical. Sika, Geberit, Georg Fischer and Aalberts took a beating as weaker than expected earnings let consensus to lower expectations.
Earnings season started late in January and the first couple of reports did not bear major surprises. Stocks tended to be weak after the report, which is not unexpected given the performance in the fourth quarter of last year. Just to pick one: A.O. Smith, a supplier of water-heater and in-house water treatment systems. AOS is one of the water universe’s most compelling growth stories for various reasons. They do have 30% of their revenues coming from China. Given the low base, their China business is viewed as a major wild card going into 2024. Now, the results and the outlook were kind of uninspiring. They had some headwind from pricing in the US, which made results look a little soft. The silver lining though was an increase in Chinese sales of 4.2% despite considerable forex headwind. Despite the China story unfolding favorable, the stock is down some 5% since the release.
From the shop floor
M&A was in the spotlight right from the beginning of 2024. We are getting more and more questions about the impact of A.I. and digitalization on the water space. While we do not expect the Nvidia-like growth prospects, the thematic is gaining momentum. With global warming and scarcity of water being a real threat, technology-aided water resource management is the need of the hour.
The Swiss company ABB announced that it has agreed to acquire Canadian company Real Tech, a supplier of optical sensor technology that enables real-time water monitoring and testing. So far, ABB is a supplier of motors and controls for wastewater pumps, but has not been engaged in digital water. We will try to find out if this marks a new focus on water for them.
More relevant for us was the acquisition of Trimbles water monitoring hardware and software business by Badger Meter for an undisclosed amount. Badger Meter is a 120 year old company that is mostly known for its metering products. Around 2020 they expanded outside of the metering space into digital water (IOT, software, quality monitoring). While they are not the only metering company making moves like this, Badger is a poster child for a company that went from hardware into software with success – they trade at “tech-multiples” and are seen as an inspiration to other companies. We are invested with Badger Meter as we are convinced, that they are a compelling growth story going forward.
There were only minor adjustments made to the portfolio. Once the earnings season moves into full swing in February, we will have plenty of opportunities to move.

Would you like to learn more?
Do you have any questions about the report or would you like to find out more about the Tareno Global Water Solutions Fund? Then please do not hesitate to contact us.
Responsible
Stefan Schütz
Head Equity Research
s.schuetz@tareno.ch
Disclaimer
This information is not intended as an offer or solicitation with respect to the purchase or sale of shares of the Variopartner SICAV-Tareno Global Water Solutions Fund. Please be aware that investment funds involve investment risks, including the possible loss of the principal amount invested. For a detailed description of the risks in relation to each share in the investment fund, please see the prospectus. Investments of the Luxemburg Variopartner SICAV-Tareno Global Water Solutions Fund should be made due to the fund’s latest prospectus, the statutes, the latest annual report and, if applicable, the half-yearly report. These documents are available free of charge from the domicile of the fund at 33, rue Gasperich, L-5826 Hesperange, Luxemburg, or from Vontobel Fonds Services AG, Dianastrasse 9. CH-8022 Zürich, Switzerland and Bank Vontobel AG, Zürich, Switzerland.
Images: Jürg Kaufmann, Marijke Vosmeer, Istock, Unsplash, Pixabay