Fund Manager Review November 2023

Roaring back

Thinking about a song that best describes the market action in November, “Roar” by Katy Perry might be a good choice. After the signi­fi­cant correc­tion in October, stock markets experi­enced a strong rebound in November. Data releases broadly supported the view that central banks have reached the peak of their tightening cycles. The Fed noted at their November meeting that infla­tion appears to be slowing but left future interest rate hikes on the table should infla­tion turn less favorable again. As the US economy conti­nues to show resili­ency, their cautious approach seems appro­priate. Nevert­heless, the market started to price the likeli­hood of a rate cut in early 2024. As investors switched gear into risk-on mode, stock markets enjoyed their best month since the start of the year. Within the markets most relevant to us, the S&P500 rose the most (9.1%), followed by the MSCI Europe ex-UK (6.9%) and the Topix in Japan (5.4%).

The Tareno Global Water Solutions Fund posted its best monthly perfor­mance at +7.97% (W‑Euro Tranche) in November.

Water funda­men­tals

Looking at the most relevant funda­mental data, there are signs of a slowdown in demand in general. We are still in the “soft landing” camp, but we have to admit that in the phrase “soft landing”, you have the word “landing”.

While indica­tors for industrials point to a steady slide in manufac­tu­ring activity on both sides of the Atlantic, we still see niches that show resili­ency. The resho­ring trend is still ongoing and conti­nues to be a major driver for compa­nies selling water techno­logy into the industry. The trend could even accele­rate in 2024 depen­ding on geopo­li­tics.

Construc­tion has been a weak spot throug­hout the year as elevated interest rates put the market under pressure. We continue to favor compa­nies exposed to infras­truc­ture and residen­tial water treat­ment (Sika, Wiener­berger, A.O. Smith).

Corn prices continue to tick lower well below their 2022 highs. This is weighing on the Farm Belt economy, which is the major end market for irriga­tion techno­logy. Deere, a major supplier of ag-machi­nery sees double digit declines in equip­ment sales for 2024. This leads us to take a very cautious approach to this sector.

The bright spot is the municipal market. We are seeing impro­ving activity in Water, Sewer and Waste projects. After lagging CPI during the post-Covid infla­tion spike, water prices are likely to outpace infla­tion again, which is a clear positive for utili­ties. We might add to this segment into year end, as the sector will be a benefi­ciary if rates effec­tively peak.

Our month in water

We attended Aquatech, an important trade show for water treat­ment in Amsterdam. This year’s edition was a successful and positive reunion of the global water sector welco­ming 837 exhibi­tors and around 24’000 visitors. The event is a great oppor­tu­nity for us to engage with repre­sen­ta­tives from many compa­nies of our universe. The topics discussed the most were: The role of waste­water in the circular economy, techno­lo­gies to address PFAS conta­mi­na­tion, advance­ment in energy efficient desali­na­tion or harnes­sing A.I. and data analy­tics in water quality monito­ring. We came away convinced, that the thematic of water has not lost any of its long-term appeal.

Spot-on ESG

We are delighted that our fund has been awarded the FNG label for the sixth time and this year even achieved the highest rating of three out of three possible stars. This award illustrates the great progress we have made in recent years at all levels of the sustaina­bi­lity process. We look forward to maintai­ning this high standard and keep pace with the constantly changing requi­re­ments in the area of sustaina­bi­lity.

Have a great holiday season ahead!

The typical Christmas dinner requires about 45’000 liters of water to produce with meat domina­ting the water footprint. Tradi­tional favorites like French Fries and the various cookies (Katja’s fanta­stic Ginger­b­read) are adding to the total as well as bever­ages. Finally, everyone who has washed the dishes can attest to the water inten­sity of the work after­wards.

Beyond being a collec­tion of fun facts, virtual water footprints highlight the long-term invest­ment case behind water techno­lo­gies. Enhan­cing effici­ency of water usage in the industry, in agricul­ture and in house­holds repres­ents a real driver for invest­ment.

Time is flying – this is already the last report of the year. 2023 was packed with challenges not easy to weather. Time now, to take a well deserved breather.

We would like to thank you for your continued loyalty with us and wish you a Merry Christmas and a Happy New Year!

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