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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