Monthly commentary - Mackenzie Greenchip Team

Macroeconomic recap

May was another month of wild geopolitical developments and market speculation.  President Trump and other members of the US administration and media continued to regularly oscillate between promising ‘deals’ and threatening Armageddon, while tensions across the Middle East built even in the face of a fragile ceasefire.  President Trump and Russian President Vladimir Putin both visited Xi Jinping in Beijing, in successive weeks, with at least President Trump and his large entourage of oligarchs seemingly coming away with little.  In the meantime, with the Strait of Hormuz remaining essentially closed for nearly three months now and no end in sight, oil prices were somehow managed lower by nearly 20%.  And global equities continued their frenzied run, adding to April’s record gains, up nine weeks in a row, and up more than 10% since the Iran war began.

As the equity rally continued, so too did its unprecedentedly concentrated nature, with big tech and data and any products and services connected to the AI data centre capex supply chain dominating returns while most other sectors languished.  While the NASDAQ and MAG7 giants rose nearly 10%, semiconductors were up over 20% (nearly tripling over past twelve months), and memory semiconductors were up even more.  In May alone, three new companies entered the USD $1 trillion valuation club, all of them memory producers: Micron Technology, Samsung Electronics, and SK Hynix.  There are now 15 trillion-dollar giants, 12 of which are American, and 6 of which are in the semiconductor industry.  With OpenAI, Anthropic, and SpaceX all expected to hit the public markets in the coming weeks, the trillion-dollar club is expected to continue to rapidly grow.  Sticking with the SpaceX theme (expected to debut with a valuation around 100x revenue), escape velocity truly seems to have been reached for global equity markets, especially in America, and especially related to AI.

Current positioning and Outlook

Environmental equities were generally in line with the broader market while the Greenchip strategy slightly underperformed.  Strong performers in the Greenchip strategy were largely, as for the broader market, driven by exposure to the AI data centre buildout’s insatiable desire for semiconductors, electrical equipment, and energy.  Eight out of our top ten performers for the month were either semiconductor or raw materials producers, the latter being mainly copper.  On the downside, Brazil, which had been leading global performance, at least until the launch of the Iran war, underperformed both in equity prices and the currency.  Our three biggest losers were our Brazilian holdings Rumo, AXIA Energia, and SABESP.  While political speculation is increasing in advance of Brazil’s October election, longer term we see improving economic fundamentals for the country and expect interest rates and currency moves to add support to the company-specific drivers that favour our investments there.  With respect to our AI-exposed investments, our primary thesis for these companies is more due to the need for infrastructure upgrades and efficiency improvements in electrical supply chains and utility asset bases.  Their overlap with AI themes and momentum has stretched valuation in many of our companies and we have been actively rebalancing as the environment has become increasingly frenzied in our judgment.

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