Monthly commentary - Mackenzie Greenchip Team

Written by the Mackenzie Greenchip Team

Portfolio Manager Monthly Insights

Key takeaways

Equity markets continued their remarkable run into the second half of the year with leadership increasingly returning to the US consumer tech giants.  

The Greenchip strategy lagged slightly for the month. Greenchip was hurt by weak Euro currency performance after the EU-US trade deal was announced and by a few poorly received earnings reports, notably from power semiconductor manufacturer ST Micro, lighting producer Signify, American utilities contractor Mastec, and Austrian industrial equipment producer Andritz.

Countering these losses were several strong earnings reactions, most notably from American farming equipment concern AGCO and from French electric cable manufacturer and installer Nexans.

Macroeconomic recap

Equity markets continued their remarkable run into the second half of the year with leadership increasingly returning to the US consumer tech giants. The White House continued to dominate news flow and investor attention, with July’s focus around trade ‘deals’, announced with the EU, Japan, and South Korea among others. Notable in the month’s trade negotiations was a lack of any agreement with non-Western-aligned countries, as the all-important China file was punted a further 90 days, while Brazil and India both posted indignant responses to Trump’s accusations and threats. Nevertheless, the combination of pliant allies providing deal headlines and generally strong earnings reports from the all-important ‘Magnificent 7’ tech companies (Nvidia crossed $4 trillion in market value during the month) was enough to propel a rebound in the US dollar and world-leading gains for US equity indexes. And it wasn’t only tech giants signaling the return of US-dominated optimism: speculative fervor was evident in high volume trading of ‘meme stocks’, cryptocurrencies and anything even tangentially related to AI.

Current positioning and Outlook

The Greenchip strategy lagged slightly for the month. Greenchip was hurt by weak Euro currency performance after the EU-US trade deal was announced and by a few poorly received earnings reports, notably from power semiconductor manufacturer ST Micro, lighting producer Signify, American utilities contractor Mastec, and Austrian industrial equipment producer Andritz. While ST Micro, along with its industry peers, is awaiting a rebound in spending on industrial and automotive applications and rebuilding of channel inventories, the other three companies’ reports diverged little from our expectations but were penalized for not ‘raising the bar’ after strong stock price gains. Countering these losses were several strong earnings reactions, most notably from American farming equipment concern AGCO and from French electric cable manufacturer and installer Nexans. Similar to ST Micro, AGCO is looking for signs of a cycle bottom in its own industry, while in contrast to ST Micro expectations had not yet begun to increase. Meanwhile, Nexans reported strong growth and margin increases in its high voltage products and services for electrical utilities. Overall, across our portfolio, challenges related to trade, industrial cycles, and geopolitics have many of our companies facing uncertain futures. However, unlike the US giants and global tech in general, we find our companies are priced for this uncertainty and offer long-term upside across most scenarios.

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