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.

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.
Images: Jürg Kaufmann, Marijke Vosmeer, Istock, Unsplash, Pixabay