SJB | Korschenbroich, 06.09.2022.
Im Juli konnte die SmartCity-Strategie die globalen Aktienmärkte outperformen. Während der MSCI World um 9,69 Prozent zulegte, verzeichnete der Pictet – Smart City P EUR (WKN A1CYMG, ISIN LU0503634577) eine positive Wertentwicklung von +13,44 Prozent. Alle drei Untersegmente des Fonds verzeichneten überdurchschnittliche Ergebnisse, besonders stark entwickelte sich der Bereich “Building the City”, wo Schneider Electric herausstach. Pictet-FondsManager Ivo Weinöhrl thematisiert in seinem aktuellen Monatsbericht für Juli die wichtigsten Veränderungen im Portfolio und gibt Investoren der FondsStrategie SJB Nachhaltig einen Ausblick für die Aktien, die von den Entwicklungen hin zur modernen Stadt profitieren.
Market Review
July saw a strong rebound in global stock market performance after a so-far abysmal 2022. The MSCI All Country World Index recorded a gain of 7.0% (in USD terms). The US was the strongest contributor despite a second consecutive quarter of falling GDP and inflation data that continued to surprise to the upside. The Consumer Price Index rose by 9.1% year-over-year in June while expectations were for an 8.8% increase. Consequently, the Federal Reserve raised interest rates by another 75 basis points during its July meeting. Even European stock markets finished in positive territory despite never-abating concerns around gas supplies. Russia reduced gas shipments through Nord Stream 1 to 20% of agreed volumes (from 40%), a move that pushed European gas prices up by more than 30%. From a country perspective, China fared the worst due to renewed concerns around the health of its property sector, which is vital to its economy. Another reversal was seen in the performance of growth versus value stocks, with the former outperforming the latter sharply, as long-duration securities fared well throughout the month. This was triggered by the yield on 10-year US Treasuries declining from 3.01% at the end of June to 2.65% at the end of July. Sector-wise, Information Technology and Consumer Discretionary stocks performed best. However, all sectors finished the month in positive territory.
Performance Analysis
In July, the SmartCity strategy outperformed global equities. This result was driven by all three segments. Within Building the City, Intelligent Buildings showed notably strong performance. One of the key contributors was our investment in Schneider Electric, whose shares moved up after its second quarter earnings release. The company increased its full-year guidance and was able to prove through strong realised pricing that for many of its customers its products are an indispensable component in increasing their energy efficiency. Running the City performed well on the back of a rebound in the share prices of digital payment networks Mastercard and Visa. An increase in international travel activity and a corresponding boost to transaction volumes enabled both companies to release good earnings results. They are also a beneficiary of inflation, which increases nominal payment volumes. Furthermore, logistics facilities owners saw strong performance in July such as our holdings Segro and Prologis. Their earnings releases showed that demand for warehousing remains strong and disproved fears of a negative impact from slowing e-commerce adoption. Living in the City also outperformed global equities although somewhat less pronounced. Residential landlords and self-storage providers felt some relief after strong prior year-to-date corrections in their respective share prices.
Portfolio-Activity – Overweightings and Underweightings
In July, we neither initiated any new positions nor exited any existing ones but rather implemented some smaller changes in position sizes. For instance, we added to our holdings in logistics facilities such as Segro. The company reported strong quarterly results with rental growth of over 7%. It continues to see broadbased demand for its mostly urban warehousing space from a multitude of industries while perceived to be primarily driven by e-commerce. In addition, Segro operates with comparably low leverage and its earnings and cash flows are therefore much less impacted by interest rates that have risen sharply. The same logic applies to Prologis. On the other hand, we further reduced our holdings in German residential real estate. While very defensive from a demand perspective, higher interest rates pose a larger earnings risk from debt refinancing while tenants are potentially faced with a surge in ancillary costs from skyrocketing gas prices, limiting the sector’s potential to raise rents in the wake of inflation. We also reduced our position in a meal kit provider following a pre-release of its earnings results. While the company reported that the first half of the year was ahead of expectations, it reduced its full-year guidance. Cost inflation and tighter customer budgets are weighing on growth and profitability and pose a headwind for the remainder of the year.
Market Outlook
The secular outlook for the three building blocks of our SmartCity strategy remains highly attractive. Cities around the globe have recognized the need to invest in their aging infrastructure and deploy smarter solutions and technologies to improve their citizens’ quality of life. Since the start of the year, the market’s attention has focused on analysing and predicting the future trajectory of inflation, which is currently running at multi-decade highs in many parts of the world, as well as the respective monetary policy responses aimed at bringing it back down. More recently, the market’s assessment of the likelihood of an ensuing recession has increased and moved forward in timing. This in turn has led to a sharp decrease in long-term interest rates as investors expect central banks to embark on a less restrictive path soon, which has helped equities to recover some of their lost ground. The macroeconomic picture remains blurry and the market’s assessment of both economic conditions and future monetary policy could change again quickly, so we think it is premature to call for a sustained change in the environment and/or a market bottom. Instead, our strategy of late has been to focus even more than before on companies possessing pricing power, high visibility of earnings and cash flows and low
financial leverage.
Portfolio Strategy
Our goal is to gain exposure to companies that stand to benefit most from their ability to provide solutions to the meaningful challenges posed by rapid urbanization as well as changing demographics and consumer lifestyles. In light of fast-growing populations, cities around the world will have to undertake investments to protect human well-being and promote environmental sustainability. We find companies across a wide variety of sectors that make cities smarter, i.e. more efficient, sustainable, safer or better adapted to their citizens’ needs. The investment strategy is unconstrained across geographies, market capitalizations or sectors.
Pictet – Smart City Management Team
Ivo Weinoehrl
Lucia Macaccaro
