Written by the Mackenzie Greenchip Team
Global asset market weakness broadened in September with bonds and equities enduring substantial losses across most sectors and geographies.
Rising rates also brought financial tension to the fore once again in low-rate regions Japan and Europe.
Environmental sectors underperformed broader equity markets. Utilities in general, considered as something of a bond proxy were pressured by higher rates.
Despite all the utility turmoil, Greenchip’s European utilities performed relatively well.
Global asset market weakness broadened in September with bonds and equities enduring substantial losses across most sectors and geographies. Interest rates remained the focal point, with the US Federal Reserve adding another quarter point increase after a one-meeting pause and sending very mixed signals about plans for the balance of the year and into 2024. While headline inflation readings remain below the worst of earlier in the year, labour market remain tight. There is little indication of a return to the deflation era that was the rule in the past decade. With rates rising past 5% in US long-dated treasuries, bond portfolios lost nearly 10% in September alone, a dramatic loss for what is generally understood to be a conservative investment. Global bonds fared even worse than those in the US while commodity prices fell in anticipation of weaker economic activity, with even oil declining more than 5% in the last week of the month. Rising rates also brought financial tension to the fore once again in low-rate regions Japan and Europe.
Current positioning and notable changes
Although equity market weakness was much broader than earlier in the year, and even US tech sustained losses, environmental sectors still underperformed. Utilities in general, considered as something of a bond proxy, were pressured by higher rates, while those specifically focused on renewable energy development experienced even greater pressure due to the significant impact on construction financing. US renewable giant Nextera Energy, long the most prominent American developer and a global leader in terms of scale, indicated a weakening of returns on new projects and financial trouble at NextEra Energy Partners, a related company established to buy developments from the parent. Nextera’s announcement was a catalyst for declines across US utilities, and for another leg down in wind and solar equipment producers which were already under heavy selling pressure.
Despite all the utility turmoil, Greenchip’s European utilities performed relatively well. We selectively added to positions during the month. Overall, the Mackenzie Greenchip Global Environmental All Cap Fund was hurt by losses in solar equipment manufacturers, declines in the Euro and Yen, and by another weak quarterly report from United Natural Foods.
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