Beware of the Ides of March: market considerations for Q1 2025
Equity markets experienced a turbulent first quarter, which was characterized by strong regional differences. While US equities lost momentum in the face of increasing political uncertainty and the threat of tariffs, European and Japanese markets saw renewed investor interest.
In the US, the optimism of late 2024 has given way to uncertainty. Donald Trump’s return to the political stage has led to more confrontational policies, with tariffs on key imports fuelling fears of a possible trade war. This, combined with concerns about stagflation, has led investors to exit high-growth stocks and invest in more defensive, value-oriented segments. Volatility jumped in March as mixed signals from Washington unsettled markets. The Federal Reserve kept interest rates steady, signaling increased caution in the face of weaker investment intentions and heightened geopolitical risks.
By contrast, Europe has experienced a surprising upturn. A historic shift in fiscal policy – in particular Germany’s 500 billion euro infrastructure package and increased defense spending – has revived growth expectations. European equities, which have long been overshadowed by their US counterparts, are enjoying greater popularity again thanks to attractive valuations and a stronger euro. Investor sentiment was further boosted by the supportive tone and interest rate cuts by the European Central Bank.
Japan also benefited from a reallocation of capital, despite headwinds from a strengthening yen. The cautious normalization of the Bank of Japan’s policy has kept liquidity conditions favorable.
China remains a source of uncertainty. While there were signs of stabilization in early 2025, geopolitical tensions and ongoing doubts about the durability of policy support continue to cloud the outlook – particularly for export-oriented economies such as Europe.
The Tareno Global Water Solutions fund returned
-3.69% in March and -3.48% (W-Euro tranche) in the first quarter.
Our month in the water: Growth despite volatility and geopolitical challenges
Volatility picked up in the last few weeks of the quarter, which also affected the water universe. Despite the geopolitical turmoil, the fundamental picture still looks good. Investment in water infrastructure continues to boom. January marked the 35th of 36 months with double-digit year-over-year growth in the US, driven by government stimulus programs such as ARPA. Meanwhile, industrial production remains strong, fueled by pull-forward purchases as manufacturers rush to secure critical components ahead of expected tariffs. In Europe, too, there is finally a whiff of change, with a push for greater competitiveness and infrastructure investment.
We had the opportunity to meet with several companies in March and are confident that our companies’ business models are designed to weather short-term headwinds.
Tetra Tech
Despite initial concerns about the closure of USAID, Tetra Tech has impressively stabilized. Management is proactively redeploying its engineers to high-margin growth areas in various economic sectors, such as chemicals, pharmaceuticals and aerospace. The company has secured over $650 million in new federal contracts, demonstrating that it remains a reliable partner even in a leaner government environment.
Mueller Industries
We left our meeting with Mueller Industries feeling optimistic. Solid pricing power and robust margins support our positive outlook. With nearly $1.1 billion in cash, Mueller is well positioned to make strategic acquisitions or return capital to shareholders, giving the company enviable flexibility in a volatile macroeconomic environment.
Georg Fischer
GF’s high degree of localization (92% of US sales are produced locally) protects the company from tariffs. The immediate benefits of the German economic stimulus package are limited, but should improve sentiment. AI applications are likely to become more strategically important, particularly in the area of flow management in buildings and industry.
SIKA
SIKA is coping well with the uncertainty thanks to its largely local production model. While tariffs and inflation in the automotive-related supply chain pose indirect challenges, the company continues to invest in digital innovations and AI tools to increase productivity. The German infrastructure fund could offer an upward trend in the medium term.
Sulzer
Sulzer confidently confirmed its 2025 targets, expecting sales growth of 5% – 8% and EBITDA margins above 15%. Pricing power and strong US manufacturing capabilities – particularly in pumps and turbomachinery services – put the company in an excellent position. Delayed Chemtech orders could provide upside potential in the second half.
Geberit
Geberit posted encouraging sales growth in early 2025, supported by successful price increases. It remains resilient to tariffs, with AI initiatives improving operational efficiency. The recovery in the German construction sector bodes well, and leading indicators point to growing demand for plumbing solutions across Europe.
Politics and Strategy: Water Shows Resilience
Despite headline-grabbing actions by the US administration – shutting down USAID, raising tariffs and slashing government budgets – the water sector remains largely untouched. Environmental deregulation under new EPA chief Lee Zeldin is moderate, with minimal changes to core water standards. Infrastructure funding (e.g. ARPA, IIJA) remains intact, providing a stable foundation for public sector projects. Although trade tensions may lead to higher input costs, most producers choose to pass on prices rather than relocate production. For investors, the message is clear: water remains an absolutely central issue – even if Washington wobbles.
