Monthly commentary - Mackenzie Greenchip Team

Portfolio Manager Monthly Insights

Key takeaways

Environmental sectors and the Greenchip strategy both outperformed broader index gains for the month.  

The Greenchip strategy experienced strong gains in solar companies, particularly in Canadian Solar, up more than 50% for the month. Solar, and especially solar-plus-storage, is getting more attention in US markets desperate for power to serve the AI-driven surge in demand.

Utilities in Europe and Brazil continued to be strong performers for Greenchip while industrials were more mixed.

Macroeconomic recap

Prevailing trends in asset markets continued in October, with further equity market gains being led once again by US technology giants. The biggest trading catalyst in the month was US-China trade relations, which underwent the type of rapid mood swings increasingly typical of both financial markets and the Trump administration. An on again—off again meeting between Trump and Xi finally took place near the end of the month, arguably resulting in some US concessions after China leveraged its dominant position in rare earths and associated processing technology. With a China-US ceasefire at least temporarily in place, market attention turned back to AI euphoria and earnings reports from the third quarter. ChatGPT owner OpenAI continued its furious pace of announcements with America’s largest tech companies, this month adding semi companies Broadcom and AMD to its commitments which, according to some compilations, now total over $1 trillion. Earnings reports were generally strong and outlooks were upgraded as the AI-led capital spending boom—and a second interest rate cut in as many months from the Federal Reserve—is supporting many parts of the industrial economy. There are, however, growing cracks in the general consumer economy, with consumer confidence dropping and credit concerns cropping up in areas such as auto loans.

Current positioning and Outlook

Environmental sectors and the Greenchip strategy both outperformed broader index gains for the month. The FTSE Environmental Opportunities index was led, once again, by Tesla where demand driven, at least in part by buying ahead of expiring US EV purchase subsidies, helped turn year-over-year growth in auto unit sales positive for the first time this year—albeit at decreasing profitability. The Greenchip strategy experienced strong gains in solar companies, particularly in Canadian Solar, up more than 50% for the month. Solar, and especially solar-plus-storage, is getting more attention in US markets desperate for power to serve the AI-driven surge in demand. Canadian Solar is an emerging leader in solar-plus-storage solutions with good market presence in the US market. While anti-China policy has been a constant threat against Canadian Solar and its peers, the company has executed well in the face of this uncertainty and the growing confidence in the storage market has created something of a short squeeze in this heavily shorted stock. Utilities in Europe and Brazil continued to be strong performers for Greenchip while industrials were more mixed. Earnings reports for industrials showed strength in the electricity equipment suppliers such as Nordex (wind turbines) and Siemens Energy (high voltage transmission) but extended demand uncertainty and inventory correction in other areas such as ST Microsystems (power semi), Signify (LED lighting) and AGCO (agricultural equipment).

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