Monthly commentary - Mackenzie Greenchip Team

April 30, 2024

Key takeaways

Overall, economic indicators continue to point to sluggish growth in the US and China and near recessionary conditions in Europe.

As the US election approaches, trade rhetoric from all sides is getting more bellicose and adding to economic uncertainty.

Environmental sectors and the Mackenzie Greenchip Global Environmental All Cap Fund experienced similar losses to the broader markets.

Strong earnings reports from Greenchip holdings Hitachi, Mitsubishi, Carrier and Mastec were all well received by investors, with all four of these companies gaining 10% or more in response.

Macroeconomic recap

April delivered the first significant equity market losses since the early fall of last year. Overall, economic indicators continue to point to sluggish growth in the US and China and near recessionary conditions in Europe. Yet weaker demand has not helped reduce inflation as commodity supplies remain tight and major governments and central banks are rumoured to be building strategic reserves of energy and metals such as copper and gold. Copper, in particular, is garnering continued attention for its scarcity and critical role in electricity supply. The price for copper rose more than 10% in April and is near all-time highs. With weaker growth and persistent inflation, central banks are in conflict between their dual mandates to support employment while keeping prices under control. Volatility is rising as investors add increasing levels of uncertainty to their outlooks. Numerous company earnings reports were met with double-digit percentage gains or losses, even in giant trillion-dollar companies such as Meta Platforms or Google. Currencies, too, experienced increased volatility. The Japanese Yen hit multi-decade lows and the trading band for the Chinese Renminbi was repeatedly set lower than expectations relative to the US dollar. As the US election approaches, trade rhetoric from all sides is getting more bellicose and adding to economic uncertainty. Treasury Secretary Janet Yellen paid a visit to China in which she threatened a tougher stance on core environmental sectors, such as solar, batteries and EVs and Europe made indications of following suit.

Current positioning and Outlook

Environmental sectors and the Mackenzie Greenchip Global Environmental All Cap Fund experienced similar losses to the broader markets. Strong earnings reports from the likes of Japanese industrials Hitachi and Mitsubishi, US-based HVAC equipment provider Carrier, and energy infrastructure engineering, procurement and construction (EPC) company Mastec were all well received by investors, with all four of these companies gaining 10% or more in response. Mastec is benefitting from the rush to expand and upgrade electricity transmission and distribution networks that is underscored by the capital spending priorities of the electricity utilities in Greenchip’s portfolio. On the negative side, analog power management semiconductor volumes remained cyclically depressed as industrial demand is particularly weak and the channel continues to work down elevated inventory levels. Overcapacity in certain industrial sectors (including solar and EVs) has led to slowing factory spending and is affecting not just Greenchip semiconductor holdings but also providers of factory automation such as Siemens. On the semiconductor side, at least, company management teams expect that inventories will be normal by the end of this quarter and demand growth should resume later in the year. In the meantime, consistent with solar and many environmental subsectors, margins in analog and factory automation during this period of cyclical weakness have proved to be significantly better than in prior troughs.

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