Challenging market conditions in August

Our water fund experienced a decline of -1.48% in August, influenced by geopolitical uncertainties and unexpected interest rate changes. The situation stabilised towards the end of the month, but the focus remains on the defensive.

Download water fund report as PDF

Waterfund report

August 2024

 

The first trading days of August saw markets melting like the wax on Icarus’ wings. Concerns over a potential US recession and the sudden unwinding of short positions in the Yen, following the Bank of Japan’s surprise interest rate hike, led to a massive spike in volatility. While sharp drops in markets are common, especially during the summer when trading volumes are thin, the extent of the drop was significant. As the month progressed, fears subsided thanks to reassuring statements from both the BOJ and Fed Chair Powell. The Fed announced plans to ease monetary conditions in September. Overall, the outlook brightened towards the end of the month, and losses were partially recovered.

The Tareno Global Water Solutions Fund recorded a performance of -1.48% (W-EUR tranche) in August.

Our month in water

Earnings season slowed down significantly from its July peak, with only a handful of companies reporting. Watts Water exceeded expectations, though the near-term outlook was slightly disappointing. Watts, which supplies water technology to the construction sector, noted a continued slowdown in activity across Europe, a sentiment echoed by peers like Geberit and Wienerberger. Advanced Drainage Systems met expectations, as demand for stormwater drainage systems remains robust. Reports from American Waterworks and Essential Utilities also held no surprises. We recently increased our positions in both companies, reflecting a shift towards more defensive names.

The standout report came from Tetra Tech, a leader in environmental consulting. The company remains one of the most compelling growth stories in our universe and a long-time favorite of ours. Net revenue rose by double digits, and the order backlog reached a new all-time high. Tetra Tech secured several high-profile contracts, including a USD 56 million deal for the design of a PFAS removal solution. With US federal agencies as key customers, some bears are concerned about how the upcoming elections might impact future spending. However, given the strong backlog and the associated visibility, Tetra Tech appears well-positioned for any shifts in spending priorities.

Apart from the earnings reports, there was little news. We are still digesting the sell-off in Japan, which left many companies in our universe well below the highs reached earlier this year. While we remain confident in the fundamentals of companies like Kurita, Ebara, and Kuraray, we prefer to stay on the sidelines until the volatility finally settles.

 

Play defensive

It is difficult to predict how September and October will unfold for stock markets. These months are seasonally soft, and the upcoming US election will likely keep investors on their toes. On the other hand, inflation is moving in the right direction, and the anticipated interest rate cut is on the horizon. As we remain in the “soft landing” camp, this should bode well for small and mid-caps.

Nonetheless, we believe it is appropriate to maintain a cautious, defensive positioning.

More publications

Portrait Stefan Schütz

Would you like to learn more?

Do you have any questions about the report or would like to find out more about the Tareno Global Water Solutions Fund? 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