Monthly commentary - Mackenzie Greenchip Team

July 31, 2024

Key takeaways

Crowded positioning in dominant tech names reversed somewhat, leading to a significant rotation from US large-cap technology growth to small, mid cap, international, and value-oriented investments.

The Japanese Yen performed strongly, as large fund investors reduced leverage that was concentrated in that low-interest rate currency.

Utilities demonstrated strength, especially SSE, EDP and Veolia in Europe, recovering some of the losses from the French political crisis of the prior month.

The team believes that agricultural equipment and power semiconductor markets are up for a relatively rapid rebound in the face of what are very attractive valuations given that management teams are aggressively managing their inventories and producing significantly less than end market demand.

Macroeconomic recap

Asset markets began the second half of 2024 with a notable shift in volatility. A near assassination of Republican nominee Donald Trump followed by backroom intrigue in the Democrat party to shift their nominee from Biden to Harris highlighted just how unpredictable the lead-up to the November election will be, with significant risks to political and social stability. Meanwhile, questions about the return case for the hundreds of billions of capital being spent on AI and datacentres became increasingly frequent, while Nvidia delayed the release of its latest high speed processing chip. Crowded positioning in dominant tech names reversed somewhat, leading to a significant rotation from US large-cap technology growth to small, mid cap, international, and value-oriented investments. Interestingly, the US dollar, normally a safe haven in times of increased volatility, was weak along with the equities of the largest American companies. The Japanese Yen performed strongly, as large fund investors reduced leverage that was concentrated in that low-interest rate currency. Commodities were broadly lower as economic signals from China and Europe, especially, remained weak.

Current positioning and Outlook

Environmental indexes and the Greenchip Global Environmental All Cap Fund outperformed the gains in broader markets. The Greenchip strategy benefitted from the aforementioned rotation into value-oriented investments. Utilities demonstrated strength, especially SSE, EDP and Veolia in Europe, recovering some of the losses from the French political crisis of the prior month. The team’s Chinese solar companies rebounded from recent multi-year lows, while investments such as Nordex and Siemens Energy continued to show improvements in wind and very strong momentum in grid. While quarterly earnings reports from Japanese industrials such as Hitachi and TDK showed improving fundamentals, these stocks lost value in the month as investors took profits after almost two years of very strong gains and in the face of increased Japanese Yen volatility. The agricultural equipment and power semiconductor sectors are both in cyclical downturns where management teams are aggressively managing inventory and producing significantly less than end market demand. The team believe this sets these markets up for fairly rapid rebound in the face of what are very attractive valuations, but that these rebounds may not be visible until sometime in 2025.

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