Water fund on a wave of success

With a YTD perfor­mance of +13% as at the end of May, our Tareno Global Water Solutions Fund has made an excel­lent start to 2024. We also reached a new all-time high in May with a fund volume of CHF 230 million. Below we explain why our fund managers are currently outper­forming all other water funds and which factors and compa­nies have contri­buted signi­fi­cantly to this success.

Success factors

Firstly, our fund focuses speci­fi­cally on small- and mid-cap equities. These have performed excep­tio­nally well this year. The reason for this is their race to catch up with global large caps, especi­ally the global tech giants. Over the past three years, these have outper­formed small and mid-caps, which is rather atypical. This is because, histo­ri­cally, global small- and mid-caps have had higher returns than large caps.

Secondly, our tactical focus on European stocks has proven its worth. For a long time, the water sector was strongly charac­te­rised by American stocks. However, our discus­sions with several compa­nies confirm our view that investors are incre­a­singly focus­sing on Europe.

In addition, the water sector offers intere­sting invest­ment oppor­tu­ni­ties in every economic phase due to its diver­sity, ranging from highly cyclical compa­nies to water utili­ties with defen­sive charac­te­ri­stics. The urgent need to invest in water infras­truc­ture is being incre­a­singly recog­nised. This is why our strategy 2024, which focuses on smaller industrial compa­nies with good growth prospects, has already proved successful.

Highflyer

Several stocks have performed excep­tio­nally well in recent months. Here are three notable examples:

• Kemira: +30% as of 28 May: Finland-based Kemira is one of the world’s leading suppliers of chemicals for the treat­ment of process water in water-inten­sive industries.
• Tetra Tech: +28% YTD as of 28.05: Tetra Tech is an American consul­ting and enginee­ring services company that offers solutions for water treat­ment and flood protec­tion, for example.
• Arcadis: +25% YTD as of 28.05: Arcadis is a global consul­tancy specia­li­sing in sustainable design and enginee­ring solutions, parti­cu­larly in the water and waste­water sector. The company is based in the Nether­lands.

Outlook

We share the expec­ta­tion that interest rates in the US will remain high for longer and that the ECB is likely to cut interest rates before the summer. As falling interest rates benefit smaller compa­nies, we expect a continued rotation towards small- and mid-caps. This offers great poten­tial in the water sector. This is because compa­nies are benefiting, among other things, from the incre­a­sing invest­ments to combat PFAS conta­mi­na­tion and the need for heavy rainwater manage­ment. PFAS stands for per- and polyfluo­ri­nated alkyl substances. These are persi­stent chemicals that have been used in industry for decades and are incre­a­singly being banned.

Our water fund is based not only on current influences, but also on long-term drivers such as popula­tion growth, industria­li­sa­tion and climate change. The growing popula­tion requires more water and the expan­sion of water infras­truc­ture in metro­po­litan regions is essen­tial. Climate change is leading to extreme weather events, making efficient water techno­lo­gies and incre­a­sing invest­ment essen­tial.

With over 20 years of experi­ence in the water sector, we offer you the exper­tise you need to invest in this specific market segment. Get in touch with us now and benefit from this long-term trend.

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