17.07.2019

Tareno AG

Tareno Global Water Solutions Fund June 2019

Equity markets recovered from the losses incurred in May. Once again, the central banks came to the support of investors risk appetite. Confronted by weaker economic data, risks to the trade outlook and still low inflation, the Federal Reserve and the ECB indicated their readiness to add further monetary stimulus if needed. Risk assets, such as equities and credit, rallied and managed to achieve new record highs in many cases. The Tareno Global Water Solutions Fund posted a solid gain of +5.96% during the reporting period with every position in the portfolio contributing positively to the result. Industrial and Construction were the strongest sectors, the US was the strongest region followed by Europe.
Looking at our demand verticals, industrials are still leading despite the fact that a deceleration is clearly visible (The ISM PMI fell to a low of 52.1 in May, down from 58.7 a year ago). Industrial production is still on a growth trajectory, but not as solid as in 2018. As key secular drivers (urbanization, population growth and climate change) remain in sync, we do not anticipate a collapse in demand (a recession is not looming either). The stretched valuations in many names we follow make them vulnerable to corrections and profit taking. The upcoming earnings season, combined with the usually low volumes during the summer, will likely lead to volatility in both directions. Our top picks in the vertical include Thermo Fisher, Danaher and Spirax-Sarco due to their dependence on the water intensive pharmaceuticals industry as well as Ecolab, a supplier of high margin water-treatment products.
Construction recently got some tailwind from lower mortgage rates, but there are no signs of a reacceleration (commercial construction for example is still a drag).
Agriculture is still our least preferred vertical, as many farmers had been devastated by floods in the US and the wet weather provides little support to irrigation capex.
Municipal is currently a bright spot with low, but consistent growth. Wastewater treatment is a hot topic in many areas globally with capex significantly rising in the field. A survey in the ENR magazine (Engineering News Record, an iconic magazine in the industry) showed, that 34% of the companies participating are seeing growth in the sector. Tetra Tech is one of our top picks here. Another source of outperformance within the vertical are utilities. Mainly in the US, the whole group saw strong buying from investors who were looking for yield, as interest rates kept declining. Significant inflows into Utility-ETF’s have pushed up prices of American Waterworks, American States Water and Aqua America recently.
Best regards
Stefan Schütz

Stefan Schütz leads the equity research team consisting of 6 analysts, and is responsible for the European and US industry sector. He has over 20 years of experience in equity research and asset management. Stefan Schütz started his career in the finance industry in 1997 at Bank CIC. He joined the Tareno Investment Team shortly after the inception of the Tareno Global Water Solutions Fund in November 2007. Stefan Schütz is Certified International Investment Analyst (CIIA).

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