Global Thematics strategy: Our ‘CleanTech’ theme should benefit from a global positive sentiment in 2021
- 10 February 2021 (3 min read)
Key points
- Equity markets reflected concerns of further disruption due to new COVID variants
- We observed a pause amongst a number of ‘Connected Consumer’ outperformers
- We made a number of adjustments, adding particularly into the ‘CleanTech’ theme
What’s happening?
Global equity markets rose at the start of the year but ended January down as the market reflected concerns that the emergence of new COVID variants would lead to a further extension of lockdowns and disruption. Nevertheless, progress with the vaccine rollout continues, albeit at varying speeds. This does provide some optimism for the prospect of normalisation later in the year.
Despite the continued spread of COVID-19 in the US, macroeconomic data has remained positive, with manufacturing and employment data both indicating continued growth. COVID-19 restrictions have weighed more heavily on economic activity in Europe. In Asia ex-Japan, where the virus has largely been contained, growth remains evident – notably in China where manufacturing has recovered well.
We remain convinced that the disruption caused by COVID 19 has accelerated existing secular trends, improving the long-term outlook for a number of themes within the Global Thematics, with the drivers of all five themes remaining intact.
Portfolio positioning and performance
The strategy marginally underperformed the broader equity market (MSCI All Country World) in January as ‘Connected Consumer’ lagged the other four themes.
‘Ageing & Lifestyle’ benefitted from strength in Teledoc and Quidel, both of which have benefitted from tailwinds associated with COVID but which also have longer term support from the shift toward decentralised healthcare provision – Teledoc through digitalisation and Quidel through diagnostics at the point of care or at home.
In ‘Automation’, holdings in TSMC and Teradyne outperformed. TSMC is a global leader in semi-conductor manufacture, an industry which currently enjoys strong fundamentals. Teradyne is a leading provider of testing equipment for the electronics and communications industries. The company is exposed to areas with attractive fundamentals – including semi-conductors and Industrial Automation – and is currently benefitting from strength resulting from 5G and automation.
In ‘Connected Consumer’, Tencent, Alphabet and Apple all performed well but this was offset by a pause amongst a number of outperformers within the theme.
In ‘Clean Tech’, outperformance was led by Nextera and Darling ingredients. Nextera is a US utility and one of the largest producer of wind and solar energy globally. It has benefited from positive sentiment towards the Energy Transition in the US, and from strong execution on its new project pipeline. Darling Ingredients collects and recycles animal processing waste and used cooking oil to produce a range of products including biodiesel and fertiliser. It has responded well to optimism around clean fuel standards.
During January, we made a number of adjustments to the strategy. In ‘Automation’, we initiated a position in Siemens. Siemens contributes to both the Energy Transition and ongoing Industrial Automation. Having reduced exposure to non-core activities, and with a focus on improving operations, it benefits increasingly from structural tailwinds as well as self-help measures. In ‘Clean Tech’, we acquired Ceres Power Holdings and Befesa. Ceres Power is a fuel cell manufacturer with a scalable steel oxide technology which is highly efficient and responsive, compatible with hydrogen and used for numerous static solutions as well as in mobility. We initiated the position in order to gain exposure to his part of the Energy Transition. Befesa collects and recycles hazardous residues from the Steel and Aluminium industry into marketable products which replace the consumption of natural resources. As such it benefits from the drive to improve sustainability within the industry. We funded these additions by trimming a number of outperforming holdings and by exiting Honeywell International following a period of outperformance.
Outlook
Macroeconomic conditions are mixed as a result of the varying degrees of success in managing COVID-19 and differing levels of policy support during disruption. In Asia, normalisation continues and domestic conditions appear healthy, despite the ongoing risk to many export markets. In Europe, COVID-19 restrictions are weighing on macro conditions. The rollout of the vaccine offers some visibility of a path to re-opening the economy and thus provides reason for optimism. Policy support remains strong and fiscal stimulus is expected to be associated with areas of the Global Thematics, including Digitalisation and the Energy Transition. Macro conditions in the US remain stronger, and policy support will fall increasingly to the Fed, resulting in low rates for an extended period. This should be positive for equities with a secular growth opportunity.
We retain the view that high quality management teams, operating businesses with a sustainable competitive advantage in their markets and with the benefit of secular tailwinds are well placed to navigate the current disruption. The strategy is therefore well positioned to benefit from the secular shifts we are witnessing globally.
No assurance can be given that the Global Thematics Strategy will be successful. Investors can lose some or all of their capital invested. The Global Thematics strategy is subject to risks including Equity; Emerging markets; Currency; Global investments; Investments in small and/or micro capitalisation universe; ESG.
Not for Retail distribution
This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.
This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.
The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.
Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.