Monthly commentary - Mackenzie Greenchip Team

November 26, 2024

Portfolio Manager Monthly Insights

Key takeaways

Global equity markets were volatile in October in advance of the US election. Interest rates rose steadily throughout the month and have basically gone straight up since the Federal reserve cut rates by 50 basis points in September.

Higher market interest rates did little to slow down technology-heavy US stock markets or enthusiasm for AI.

Environmental indexes and the Greenchip strategy slightly underperformed in the month.

Although European markets were generally weak, Greenchip holdings Siemens Energy and Alstom continued their strong performance.

ST Microsystems and Rohm both reported relatively weak quarters and near-term outlooks, yet both are selling volumes well below end market demand and should revert to growth some time in 2025.

Macroeconomic recap

Global equity markets were volatile in October in advance of the US election. Small losses were converted to a positive result in Canadian dollar terms as the Loonie lost nearly 3%. Despite tit-for-tat strikes between Israel and Iran and an Israeli ground invasion in Lebanon, energy and other commodities experienced tepid trading. Interest rates rose steadily throughout the month and have basically gone straight up since the Federal reserve cut rates by 50 basis points in September. Higher market interest rates did little to slow down technology-heavy US stock markets or enthusiasm for AI. Nvidia notched another all-time high while Tesla, reporting virtually flat growth, lifted nearly 20% on earnings that reported higher margins than expected on the back of emissions credits and the release of full self-driving downpayments. Off setting some of this enthusiasm, Microsoft traded down as some concerns were voiced about the very high capital commitments being made to the data centres needed for AI. With the Euro and other international currencies all weakening versus the dollar, US markets are now performing more than 20% better than Europe for 2024 to date. US companies now represent more than 70% of the value of the MSCI World Index.

Current positioning and Outlook

Environmental indexes and the Greenchip strategy slightly underperformed in the month. Utilities were relatively weak in the face of rising interest rates. Although European markets were generally weak, Greenchip holdings Siemens Energy and Alstom continued their strong performance. Siemens A.G., however, was relatively unchanged as the company announced its intention to acquire US engineering software developer Altair for approximately USD $10b. While the valuation is at the very high levels customary for US software, this acquisition should help consolidate Siemens industry leading software position and highlight its value, which is arguably unrecognized in the market. Analog semiconductors remained a relatively weak spot for the fund, with industrial markets still generally challenged and automotive markets trading down from high content battery electric vehicles to lower content hybrids. ST Microsystems and Rohm both reported relatively weak quarters and near-term outlooks, yet both are selling volumes well below end market demand and should revert to growth some time in 2025. Finally Chinese solar supply chain companies were very volatile in October, after strong gains in September, as Chinese economic and financial policy interventions were clarified and, in some cases, found wanting by market analysts. We continue to expect further market rationalization, regardless of Chinese policy initiatives, in the coming year and a bottom in pricing and margins in early 2025.

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