News from the water sector: innova­tions and invest­ment oppor­tu­ni­ties despite global risks

Growing uncer­tainty: How US politics affected global markets in February 2025

After an optimi­stic start to 2025, the narra­tive of US equity market excep­tio­na­lism lost some of its luster in February. Doubts about the impact of the US govern­ment’s policies began to affect business and consumer confi­dence, leading to renewed concerns about economic growth. This lacklu­ster perfor­mance in the US impacted equity markets in the developed world, which saw prices fall slightly during the month.

February saw a deterio­ra­tion in both consumer and business senti­ment. There was a notable decline in service sector activity and small business invest­ment plans, as well as a signi­fi­cant drop in consumer confi­dence – the largest since August 2021. Although the House of Repre­sen­ta­tives passed a budget frame­work that extended the Tax Cuts and Jobs Act of 2017, this did not indicate a clear commit­ment to further fiscal stimulus. In this environ­ment, govern­ment bond yields fell over the course of the month.

Global small-cap stocks, which typically benefit from falling yields, did not perform well as concerns about economic growth took prece­dence over the benefits of lower discount rates. Similarly, despite lower yields, concerns about the future earnings of US mega-cap tech compa­nies, parti­cu­larly those involved in artifi­cial intel­li­gence, also dominated. Coupled with fears of an escala­tion around the imposi­tion of tariffs on imports into the US, US markets faced discounts.

In contrast, European equities outper­formed their US counter­parts in February. The MSCI Europe ex-UK Index rose by 3.4 %, buoyed by growing expec­ta­tions of a cease­fire in Ukraine.

The Asian stock markets also performed positively. Chinese shares in parti­cular showed a robust recovery. Important meetings between Xi Jinping and promi­nent business leaders indicated a possible impro­ve­ment in regula­tory condi­tions. Develo­p­ments in Japan were diffe­rent. Local markets weakened due to the strength of the yen against the dollar.

The Tareno Global Water Solutions Fund recorded a perfor­mance of ‑1.23% (W‑EUR tranche) in the month under review.

Our month in the water: a mixture of expec­ta­tions and caution

All eyes were on the company results last month. What we saw was in most cases as expected. However, the forecasts were often charac­te­rized by caution. This is not surpri­sing, but the market’s reaction was sometimes harsh.

Itron, a leading manufac­turer of electri­city, gas and water meters, expects sales to continue to rise in 2025, albeit not quite as strongly as in the past year. This assess­ment is also shared by Xylem, one of Itron’s compe­ti­tors in the meter sector. Itron was parti­cu­larly optimi­stic about its software business, which boosted the share price over the course of the month.

Watts Water impressed with excel­lent results in the fourth quarter despite signi­fi­cant challenges in Europe, confir­ming the impres­sion that the company is excep­tio­nally well managed. The focus on software solutions for the real-time monito­ring of flow systems is parti­cu­larly promi­sing. This is an area that is also to be streng­thened through acqui­si­tions.

Although Pentair reported minimal sales growth, it achieved a remar­kable increase in margins and profits. This is thanks to a restruc­tu­ring strategy that is to be continued until 2025. The expected savings should enable double-digit EPS growth. Looking ahead to 2026, a recovery in the housing market could additio­nally boost earnings.

Georg Fischer is on its way to becoming a leading global provider of flow solutions. The company has successfully completed the integra­tion of Uponor faster than expected. Despite conser­va­tive forecasts, our confi­dence in the new strategic direc­tion remains strong.

Veolia has delivered convin­cing results for 2024, meeting or excee­ding forecasts despite a volatile economic climate. The company expects to maintain this momentum thanks to internal effici­en­cies and growth initia­tives. Thanks to its solid balance sheet, Veolia also has the flexi­bi­lity to make invest­ments and poten­tial strategic acqui­si­tions.

Shares in Tetra Tech plummeted in February after Elon Musk took unexpec­tedly aggres­sive action against USAID, a major customer of the company. Given the uncer­tainty surroun­ding Musk’s future actions and poten­tial litiga­tion, the view on Tetra Tech remains clouded.

Focus on European markets: poten­tial for outper­for­mance in an uncer­tain environ­ment

The reporting season is coming to an end and the flow of corpo­rate news will dry up. Geopo­li­tics will keep the markets busy and volati­lity at a high level. We feel comfor­table with our current positio­ning, which aims to see European stocks continue to outper­form their US counter­parts. Some of the compa­nies we follow have seen their share prices punished too severely follo­wing the publi­ca­tion of cautious forecasts. We are probably not far away from some attrac­tive entry points.