Monthly commentary - Mackenzie Greenchip Team

June 30, 2024

Key takeaways

Magnificent 7 companies added $3.5 trillion for the year-to-date, $2 trillion for the quarter, and $1.2 trillion for the month of June to their aggregate market value.

In response to the EU election cycle that showed gains for populist parties on both the left and right, European credit, equity markets and Euro currency weakened significantly.

Global macroeconomic and geopolitical news obscured some positive developments for Greenchip holdings, including French rail systems provider Alstom, which successfully completed a capital raise that will help it manage the working capital needs to execute its near five-year backlog.

Japan’s TDK added an announcement of solid-state battery advances to its earlier progress in silicon anode, further solidifying a leading place in small battery technology.

Macroeconomic recap

The first half of 2024 was completed with continued eye-popping gains in US consumer tech giants. The so-called Magnificent 7 companies added, in accelerating fashion, $3.5 trillion for the year-to-date, $2 trillion for the quarter, and $1.2 trillion for the month of June to their aggregate market value. In the meantime, sailing was not so smooth for much of the remainder of global assets. In response to the EU election cycle that showed gains for populist parties on both the left and right, and a snap French election call that followed, European credit and equity markets – especially in France – and the Euro currency both weakened significantly. It is indicative of the remarkable disparity between sector and regional valuations that the 8% loss experienced in France’s flagship CAC 40 Index in June equated to USD $240 billion in market value, an amount that was exceeded by gains for each of Nvidia, Microsoft and Apple individually. Belying strength in technology, US economic indicators pointed to continued softening, major retailers Kohl’s and Dollar General issued profit warnings, and the debate between Trump and Biden served as a warning for still greater political dysfunction heading into the November election. Yet politically-driven market volatility was for now felt only overseas as – in addition to Europe – Japan, Brazil, China and most emerging markets experienced significant pressure in their credit and currencies.

Current positioning and Outlook

Environmental sectors and the Mackenzie Greenchip Global Environmental All Cap fund fared worse than the technology-driven general market. French holdings were the primary cause, followed by broader Europe. Of our French holdings, revenue exposure to France is 15% or less for all but the utility Engie and profit exposure is lower still given lower-than-average margins in the domestic market. While there is little in the political changes that should dramatically affect our companies’ business operations and values were attractive even before the sell-off, it will likely take time before investor nerves are settled. Global macroeconomic and geopolitical news obscured some positive developments for Greenchip holdings, including French rail systems provider Alstom, which successfully completed a capital raise that will help it manage the working capital needs to execute its near five-year backlog. The company reiterated growth and margin targets, while also adding a longer-term target of 100% free cash flow conversion that would bring free cash flow yield to greater than 20% in as little as four years. In other positive news, Japan’s TDK added an announcement of solid-state battery advances to its earlier progress in silicon anode, further solidifying a leading place in small battery technology. The company intends to apply these advances to mid-sized batteries for energy storage systems.

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