Water Fund Review March 2024
Resiliency and Opportunity in March
The positive momentum gained in February continued in March and as the curtain falls on the quarter, the financial landscape presents a narrative of resiliency and opportunity. Developed market equities had a strong first quarter thanks in large part to the performance of growth stocks. This was especially true in the US, where the S&P 500 rose 10.6%, outperforming most of its peers. However, the best performing market of the quarter was once again Japan. The TOPIX ended up 18.1% in the first three months of the year, despite the Bank of Japan raising interest rates for the first time since 2007, ending the world’s only negative rates regime and other unconventional policy easing measures enacted over the course of the last few decades to combat deflation. While some European equity indexes, such as the French CAC 40, reached new all-time highs, European equities overall continued to lag the US and Japan. However, European stocks ended the quarter on a brighter note as global investors, concerned about the concentration risk of the US market, started to turn to Europe where valuations look more reasonable.
The Tareno Global Water Solutions Fund posted a performance of 4.85% (W-Euro Tranche) in March to close the quarter with a solid performance of 11.75%.
Our month in water – Valuable insights
We had the opportunity to meet many companies from our universe thanks to two conferences held by Kepler Cheuvreux and Northcoast Research. We engaged with US and Swiss names on market trends, the outlook for pricing in an environment of easing inflation, the impact of fiscal spending and last but not least the reporting on ESG metrics. While this is often dismissed as a mere formality, we see significant opportunities here to help companies enhance their ESG profile.
Now, what did we learn from the meetings we had? First of all, the long term drivers are still very much in place (population growth, urbanization, and climate change). Since “water” is a very local issue, there is no “one strategy fits all needs”, which means that there will be way more tasks to complete than companies are able to handle. The order book just keeps growing. Now on top, there are several factors that are starting to unfold. The growing awareness of the importance of water reuse. It makes so much sense to reuse water instead of just treating it up to drinking water standard and release it into the ecosystem. Stormwater management is another topic gaining traction. We heard Advanced Drainage Systems talk about the strong demand they face for their drainage pipes. Another timely topic is A.I., which requires two things: Chips and Datacenters. Chip manufacturers need ultra-pure water to produce chips. The water needs to be treated, monitored, and handled throughout the process which requires a lot of expertise. The datacenter just needs a lot of cooling, where water is the main component. Here again, a lot of infrastructure is needed. Georg Fischer, was particularly vocal about the demand they see for their piping products from A.I.
Rising like rockets, falling like feathers
One topic that came up in almost every discussion is pricing. How long will prices stick in an environment where inflation is cooling? It was kind of surprising to always get the same message: “There is no pressure to lower prices, but we won’t probably raise as much this year.” This is definitely not what we would have expected 2 years ago. An article from the Wall Street Journal delved into this question lately and concluded that prices escalate sharply but decrease slowly because companies are quicker to pass on rising costs to customers than to offer price reductions when costs fall. This dynamic is central to understanding why the cautious predictions regarding corporate margins did not materialize so far.
11.75% YTD, what now?
Would this be the December report, I would thank Mr. Market for a nice performance, but we are only a quarter into the year. The global economy’s strength and the possibility of interest rate reductions in the latter half of the year might sustain the current trend, yet certain markets seem overly optimistic, leaving them vulnerable to corrections. Markets are continually exposed to various economic, environmental, political, and geopolitical uncertainties, all of which could introduce increased volatility. Therefore, diversification is key. The good news is that the water universe has ample choice to diversify.

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
Head Equity Research
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