SJB | Korschenbroich, 21.06.2022.
Im Mai wurden die globalen Aktienmärkte von einer gestiegenen Volatilität heimgesucht. Höhere Makrorisiken durch den Russland-Ukraine-Krieg, die Sorge vor kräftigen Zinsanhebungen sowie der Lockdown im chinesischen Shanghai wirkten sich allesamt negativ auf die Marktstimmung aus. In diesem angespannten Börsenumfeld verzeichnete der Pictet – Smart City P EUR (WKN A1CYMG, ISIN LU0503634577) eine negative Wertentwicklung von -7,52 Prozent und entwickelte sich damit schwächer als seine Benchmark. Vergleichsweise schlecht performten Immobilienaktien, positive Ergebnisbeiträge waren von Titeln aus dem Bereich Stadtentwicklung zu verzeichnen. Pictet-FondsManager Ivo Weinöhrl thematisiert in seinem aktuellen Monatsbericht für Mai 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
May saw significant intra-month volatility. The key macro risks of war in Ukraine, tightening monetary policy and Covid restrictions in China remained unchanged. Overall, the MSCI All Country World Index recorded a gain of 0.2% (in USD terms). The war in Ukraine continued unabated. While there have been calls for a diplomatic solution, the current red lines laid out by both sides seem incompatible. The annual inflation rate in the Eurozone was 8.1% in May amid a tight labour market, with unemployment now the lowest on record. Both data points support the European Central Bank’s indication of a first interest rate hike in July. In the US, headline inflation came in above expectations at 8.3% while the Federal Reserve increased rates by 50 basis points in May. China continued to grapple with the Omicron variant. While the city of Shanghai spent most of the month in lockdown, officials announced a gradual general reopening will take place in June. Value stocks was the best performing asset class over the month. Commodities continued to perform well with oil and wheat prices are still on the rise. Growth stocks continued to struggle off the back of valuation compression and several high-profile earnings warnings. Sectorwise, Energy, Utilities and Financials showed the strongest performance, whereas Consumer Discretionary, Consumer Staples and Real Estate ended at the bottom.
Performance Analysis
During the month, the SmartCity strategy underperformed global equities. This result was driven by all three segments. Building the City underperformed slightly, with positive results coming from the Urban Development segment. Autodesk was the main positive contributor thanks to a solid set of quarterly results. Despite difficulties due to a strong US dollar and the war in Ukraine, the company is seeing positive momentum across its product range and is therefore optimistic for the full year. Within Running the City, our result was negatively impacted by logistics real estate holdings, namely Prologis and Segro. Their shares sold off after Amazon pointed to a deceleration in its warehouse footprint expansion as a reaction to a post-Covid normalization in volumes. However, the limited supply of existing facilities, long lead times for newly built ones and the long duration of contracts in place offer a solid foundation for the investment case. Living in the City was negatively affected by a US provider of multifamily housing. Strong pricing power, as mirrored by rent increases in the double-digit percentage range and an upward revision of its full-year guidance, were not enough to offset the market’s worries. With interest rates rising, leading indicators are suggesting that the housing market is starting to slow, making Real Estate the worst performing sector for the month.
Portfolio-Activity – Overweightings and Underweightings
During the month, we exited our holding in a telemedicine provider after a material shift in the fundamental outlook that was supporting our investment thesis. The company ended 2021 with record bookings and announced a target of 30%-40% annual top line growth and margin expansion up until 2025. Not even two full months after voicing an upbeat outlook, the business prospects remarkably shifted during the first quarter, reflecting management’s complete misjudgement of the market. Growth targets were reduced, and profitability expectations severely scaled back. Given this very low level of visibility, we decided to sell our position. Secondly, a global infrastructure investor announced a binding offer to purchase all outstanding shares of Switch, a provider of datacentres powered with green electricity, at a significant premium to the latest share price. With the all-cash offer highly likely to succeed and the shares soon to be delisted, we exited our position at a significant gain. Finally, we took advantage of the broad sell-off in tech companies to start a position in the global leader in software for infrastructure engineering. Thanks to a dominant position in the Public Works and Utilities verticals, the company enjoys a resilient flow of subscription revenue, with upside coming from the huge need for infrastructure spending in both developed and developing countries.
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. The Covid-19 pandemic has accelerated many trends, such as the adoption of digital and sustainable solutions in almost all areas of our daily lives, by several years. From a shorter-term perspective, the market is now solely focused on the future trajectory of a multi-decade high inflation rate, its effect on companies’ profits as well as the monetary policy response to bring it back down. The fears are centred around a potential margin squeeze for companies facing rapidly rising costs as well as aggressive monetary tightening that could push the global economy into recession. While we are still early in this adjustment process, the focus has clearly shifted towards companies possessing pricing power, high visibility of earnings and cash flows and low financial leverage. In this environment, our strategy remains unchanged. We try to identify long-term winners in their respective fields that we think will fare well across economic and market cycles and increase our respective stakes in those companies if and when opportunities arise.
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
