Water Fund Review June: +11% performance at the half-year mark

This year's upward trend ended in June with a performance of -1.9%, but the first half of the year remains a positive memory with +11%. Find out how technological and political developments have shaped our approach in the first half of 2024.

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Halfway through

Time is flying! We are already closing out the first half of the year. Stock markets in the US managed to climb to fresh all-time highs during the month of June, mostly driven by large cap tech companies. Economic data managed to keep soft-landing hopes alive, but it comes at the cost of sticky inflation. Which of course means less rate cuts than initially expected. It has long been anticipated that geopolitical events could significantly impact the markets, and this concern has now been confirmed. The EU elections outcome was a shift to the right and on top of things we must thank Mr. Macron for crushing the European investment case as a valid alternative to the US. Only a couple of weeks ago, some non-European investors were warming up to the appeal of more reasonable valuations and a rate cut cycle that started in June. Like Sisyphus pushing the rock, we’re back to square one.

The Tareno Global Water Solutions Fund posted a performance of -1.90% (W-Euro Tranche) in June. The 2nd quarter ended slightly negative (-0.42%), but the year-to-date performance remains a pleasing 11.27%.

 

Our Month in Water – bits and pieces

June was quite a busy month in our universe. More due to external factors than fundamentals, but let’s have a look. We got the first earnings reports from Core&Main and Ferguson. They are among the leading distributors of plumbing and water technology products in the US. After a couple of quarters with outstanding growth, both names slightly disappointed with lacklustre results. They both noted rising pricing pressure in a few products. If this is the canary in the coal mine, or if deflation will remain isolated to a limited number of products remains to be seen. But of course, the uncertainty is not helpful. As Core&Main dropped double digit on the news, the reaction of Ferguson’s stock was more contained. While the outlook remains solid, pricing will be a key item to watch in the coming months.

On the other hand, Halma, a UK water technology provider (leak detection, quality monitoring, UV-based water treatment) managed to beat consensus expectations. They were rewarded with a plus of more than 20% on the news.

The primary influence on our stocks came from political events. The EU elections and President Macron’s decision to call for elections in France triggered a wave of selling in European stocks. Veolia, one of our fund’s top holdings, saw its shares drop significantly following the announcement. Despite Veolia being a French company, only about 20% of its EBIT comes from France, and its contracts are generally awarded by municipalities where Paris has little sway. We see current levels as a buying opportunity.

Turning to the US: Since the first presidential debate, the likelihood of a Trump victory has increased significantly. This is often misunderstood as a negative for water-related stocks. In reality, during his first term, President Trump supported water infrastructure, enacting the Water Infrastructure Act of (USD 200 billion) and the Modernizing America’s Water Infrastructure executive order. The National Association of Clean Water Agencies praised his strong support for infrastructure investment, including water. Trump’s policies encourage a greater role for the private sector. Additionally, a second Trump presidency could boost the U.S. oil and gas industry, benefiting companies like Tetra Tech, whose products and services enhance the environmental footprint of the energy sector. The recent pullback offers a good entry point.

 

Quiet summer days

As we approach the summer holidays, market volumes are likely to dry up, leading to quieter trading days. The upcoming earnings season will present a mix of positives and negatives, impacting various sectors differently. We anticipate some volatility but also opportunities for strategic investments. Enjoy the summer and embrace the season of light and warmth. Take this time to relax and recharge, ready to face the market dynamics ahead. Happy summer holidays to everyone!

 

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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
Fund Manager
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.

Bilder: Jürg Kaufmann, Marijke Vosmeer, Istock, Unsplash, Pixabay