Tareno Global Water Solutions Fund January 2020
Stock markets began the new decade in a good mood before volatility picked up towards the end of the month. It was the outbreak of a new “corona virus” in China, that made investors act very cautious. The major benchmarks lost ground amid growing concerns about the impact of the “corona virus” on the global economy. For the time being, the “virus” outweighs the positives. Yes, there are some: the tensions between the US and Iran faded swiftly. Major central banks remain accommodative (the Fed kept rates steady in January and noted that household spending had dropped to a more moderate level). Economic data continued to show signs of recovery and last but not least, the signing of a phase one trade deal between the US and China.
The turn in the sentiment had a positive impact on safe heavens like interest rates, gold and, to our advantage, on utilities as well. This sub-segment of our municipal vertical performed particularly well. Acea, Veolia, American Waterworks, Essential Utilities (former Aqua America) and United Utilities were the top 5 performing stocks in January. Municipal in general looks very solid. US local government raised over USD 264 bln in the muni-bond market in 2019 (a multi-year high). This sets the stage for a tailwind for capex over the years to come. According to the latest data from the US Census Bureau, spending on water and wastewater related projects is among the fastest growing categories of non-residential construction. Residential construction got a boost in December with housing starts up 41% year on year. The demand for technologies needed in in-house water management might be near an inflection point. The industrial channel continues to show signs of stabilization, but it is too early to call for a pick-up in demand. The results of Idex (IEX US) provided evidence that the headwinds in the industrial end-market prevail. Idex saw global demand for industrial products continue to weaken during the fourth quarter and lowered its outlook for 2020 significantly. The main concern is that Idex, with its short cycle manufacturing exposure, might be a proxy for other names in the industrial space.
The coming weeks will be packed with earnings reports from companies in our universe – there will be buying opportunities, this is for sure.
Best regards
Stefan Schütz
