A strong July for the Tareno Global Water Solutions Fund

Up and running

Finan­cial markets had a lot to digest during July. Geopo­li­tics in general, an assas­si­na­tion attempt on Donald Trump, diver­ging economic data, central bank actions, and a slew of earnings reports drove stocks in various direc­tions. July was a stellar month for small caps. A favorable US-infla­tion print paved the way for a cut to interest rates in September. A rotation out of large-cap tech stocks into small and midcap names followed suit, pushing the Russell 2000 Index up by more than 10%. An earlier than expected rate hike by the Bank of Japan caught investors off guard, but markets outside of Japan managed to carry the positive perfor­mance over the finish line.

The Tareno Global Water Solutions Fund achieved a perfor­mance of +5.9% (W‑EUR tranche) in July.

Our month in water – Mixed emotions

Earnings season was in full swing in July on both sides of the Atlantic. The results were mixed, leading to strong market swings. Thanks to the rally in small and midcaps, many initi­ally negative reactions rebounded strongly.

Let’s take a look at some of the results:

Mueller Industries posted solid second-quarter results, with revenue and EPS above expec­ta­tions. Notably, pricing was a tailwind in the quarter, defying fears that defla­tio­nary pressures highlighted by listed distri­bu­tors last month would impact the top line. The +23% in July made Mueller our top-performing stock.

Positive surprises also came from Masco, a US supplier of plumbing equip­ment; Webuild, a construc­tion company specia­li­zing in water infras­truc­ture; and SABESP, the water utility of Sao Paolo. All of these compa­nies saw their shares advance more than 10% during July.

Less enthu­siasm was felt for reports from Aalberts, due to a slower-than-expected recovery in the Western European housing market; Kemira, as higher energy prices and mainten­ance costs weighed on earnings; and Ebara, whose shares fell victim to waves of selling in Japanese equities.

Keeping the lights on

As you all know, August has so far seen a massive spike in volati­lity throug­hout all segments of finan­cial markets. The unexpected hike by the Bank of Japan and some disap­poin­ting economic stats in the US contri­buted to this. US interest rates fell, and the narro­wing spread between Japanese and US interest rates led to an unwin­ding of the so-called carry trade. Japanese stocks took the brunt of the beating, but the shock­waves rattled through all segments, small and midcaps in parti­cular. Regar­ding our water universe, we view the situa­tion as a cyclical headwind. Funda­men­tals have hardly changed. There are pockets of weakness in construc­tion and agricul­ture, but this is not new. On the other hand, there are pockets of strength as well, for example, in environ­mental consul­ting (Arcadis, Tetra Tech), utili­ties, and water treat­ment and reuse.

We have to acknow­ledge that the volati­lity might continue to hurt in the near future. We there­fore intend to shift the portfolio towards a more defen­sive positio­ning by adding utili­ties in the US and Europe.

The theme of water will stay high up on the agenda of legis­la­tors around the world. This is unders­cored by the fact that the European Council has recently added water resili­ence to the strategic agenda for 2024–2029.

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