Trend Watch by Evenco International - Q3 2024

Welcome to the Q3 edition of the Trend Watch newsletter, where we aim to bring you timely investment insights and perspectives from our community of senior investment professionals. This quarter, we also reflect on the success of our recent events, share articles from our vibrant fund selector community, and present a new Fund Watch List, spotlighting key investment opportunities. Additionally, we delve into the ongoing dynamics of renewable energy stocks, offer a nuanced approach to sustainability investing, and analyse the impact of US dollar weakness on emerging market returns.

With our new media partnership with CNBC, including live TV ads, we’re excited to continue bringing you investment insights as we head into Q4, starting with the highly anticipated Edinburgh event this week.

In This Edition:

1. Evenco Company Updates – Catch the latest developments, including new event announcements and partnerships.
2. Maria Wendestam on Energy Transition – Insights into the shifting dynamics of global energy markets.
3. Peter Marber discusses US Dollar Weakness and Emerging Market Returns – How currency shifts are affecting global investments.
4. Fran?ois Zagamé on Sustainable Investing – Why careful consideration is crucial before diving into strategies.
5. Vasco Laranjo, CFA on Harnessing Opportunities in Private Credit and Infrastructure.
6. New Fund Watch List – Explore the latest funds shaping the investment landscape.

Quarterly Company Update

This quarter, we successfully hosted our Swiss roadshow, visiting both Geneva and Zurich. We conducted insightful panel discussions on key topics such as Emerging Markets vs. Developed Markets and explored how alternative investments can enhance portfolio diversification. We were also honoured to have Charles-Henry Monchau, CFA, CMT, CAIA , CIO of Syz Group , join us once again to deliver an enlightening talk on Tokenization.

In exciting news, we now have a media partnership with CNBC and proudly launched our first live TV ad in collaboration with them (watch it below!). Additionally, we hosted a Trend Watch webinar focused on the U.S. election and its market implications, offering timely insights. This quarter also saw the release of 10 article collaborations with our community members, showcasing diverse perspectives on the financial landscape.

Looking ahead, next quarter promises even more events and content. Our upcoming events for Q4 include:

• 3 Oct 2024 – Edinburgh
• 24 Oct 2024 – Dublin
• 29 Oct 2024 – Frankfurt
• 5 Nov 2024 – Lisbon
• 7 Nov 2024 – Milan
• 12 Nov 2024 – Pan-Nordic, Oslo
• 14 Nov 2024 – Bilbao
• 26 Nov 2024 – North-West
• 5 Dec 2024 – Paris

Click here to view our upcoming calendar in more detail.

Renewable Energy: Than a Passing Fad

In collaboration with Maria Wendestam

In recent years, renewable energy stocks have soared to all-time highs, only to face major headwinds soon after. Does this mean renewables were just a passing trend? Absolutely not. The energy transition is still happening—and the stock market will eventually catch up.

A few years ago, renewable energy stocks performed exceptionally well, with most anticipating a bright future for the sector. However, by the end of 2022, stock prices began to fall and have not yet recovered. Why? There are four key reasons:

• Interest rate hikes: These made financing long-term projects much more expensive.
• High inflation: Development costs increased, dampening general demand.
• Supply chain disruptions: Shortages of key components led to delays and higher costs.
• Overinflated valuations: Stock prices outpaced reality and have since adjusted downward.

Despite these challenges, strong forces continue to drive the need for clean energy solutions, and I remain optimistic about the sector for several reasons:

• Lower costs: The levelized cost of energy (LCOE)—the cost per kWh produced over a plant's lifetime—is now lower for renewable sources compared to fossil fuels, favouring renewables in the long run.
• Sustained demand: While demand dipped amid macroeconomic headwinds, the need for clean energy technology and equipment remains. As interest rates fall and inflation stabilizes, demand is picking up again.
• Political support: Both the EU and the US have committed billions to the energy transition. China’s pledge to achieve climate neutrality by 2060 will also drive significant investments.
• Attractive valuations: After tough years, renewable energy stocks are trading at a discount relative to global equities, with promising earnings growth expected in the coming years.

In conclusion, the energy transition is a global megatrend that will shape our future for decades. While recent stock market volatility has been significant, the world economy’s commitment to climate neutrality means that renewable energy must grow—several times faster than global GDP.

Although the sector will inevitably face periods of volatility, a long-term investment in renewable energy offers a strong opportunity. Because renewables are anything but a passing fad.

Emerging Markets Set to Shine: Is the US Dollar Weakening at Last?

In collaboration with Peter Marber , PhD

The last decade hasn’t been kind to Emerging Market (EM) investors, with US-dollar (USD) strength keeping returns modest or even negative. The Fed’s aggressive rate hikes didn’t help either, but we might be on the verge of a turnaround.

Why? It’s all about the dollar. Historically, FX cycles aren’t short-lived—they span years. And the recent Fed rate cut could mark the beginning of a long-overdue bull market for EM assets.

What Does a Weaker Dollar Mean for EM?

• Stock Boost: When the USD weakens, EM stock prices get a boost as commodity prices rise and debt servicing costs fall. It’s the perfect recipe for improved corporate profits and stock valuations.
• Currency Comeback: EM currencies often appreciate when the dollar drops, lowering inflation and boosting economic growth. We saw this play out in the early 2000s, when EM outperformed the S&P 500 by a wide margin.
• Tighter Credit Spreads: A softer dollar eases debt pressures, making EM bonds more attractive by tightening credit spreads.

What’s Next? EM stocks are already up 10% this year, and credit indices have rallied by 8%. Could this be the start of a major EM revival? Possibly—but geopolitical risks could still drive investors back to the safety of the USD.

During our Swiss roadshow, which featured two insightful panels in Geneva and Zurich discussing the dynamics between emerging and developed markets, CIO Thomas Wille shared key takeaways from his panel:

• Soft Landing Remains the Main Scenario: The prevailing outlook suggests that a gradual recovery is likely, minimizing the risk of economic shocks.
• Swiss Franc: The Rock in the Surf: The Swiss franc continues to be a stable and reliable currency amid global fluctuations.
• Future Concerns Over US Government Debt: Growing US government debt is anticipated to pose significant challenges in the coming years.

A Nuanced Approach to Sustainability Investing: Avoiding Another Pitfall

In collaboration with Fran?ois Zagamé

The rapid rise and fall of ESG (Environmental, Social, and Governance) investments has left many investors disillusioned. Initially hailed as a powerful blend of ethical decision-making and financial returns, ESG strategies have faced intense scrutiny. By 2022, it became clear that many ESG-labelled funds were overhyped, leading to underperformance and widespread criticism. But does this signal the end for sustainable investing?

Our upcoming article examines how investors can avoid falling into the same trap by adopting a more thoughtful and disciplined approach. Key takeaways include:

• Understanding Investor Motivations: Sustainable investing isn't one-size-fits-all. Aligning investments with personal values and long-term goals is essential for weathering market volatility and ensuring genuine commitment.
• Realistic Expectations: ESG failed when investors expected consistent, superior returns while achieving positive impacts. A nuanced strategy recognizes that sustainability investing often involves long-term structural changes that may not yield immediate financial gains.
• Due Diligence and Transparency: Investors need to move beyond labels and scrutinize the actual impact of their investments. By digging deeper into company practices, methodologies, and impact reporting, investors can make informed decisions that align with their sustainability goals.
• Portfolio Integration and Diversification: Sustainable investments must fit into a broader financial strategy. Diversifying across sectors and balancing risk ensures that sustainability-focused investments complement overall portfolio goals.
• Focusing on Long-Term Impact: Short-term performance isn’t the whole story. The true value of sustainability investing lies in its long-term potential to drive meaningful environmental and social change while delivering financial returns over time.

Key Takeaways:

• ESG investing requires careful consideration of values, goals, and market realities.
• Long-term commitment and ongoing learning are critical to navigating the evolving landscape of sustainability investing.
• A systematic, transparent approach helps investors avoid the traps of hype-driven investing and ensures portfolios are resilient and impactful.

Look out for the full article next week by following our main LinkedIn page.

Harnessing Opportunities in Private Credit and Infrastructure

In collaboration with Vasco Laranjo, CFA , Research Manager at Evenco International

In a landscape marked by turbulence, 2023 revealed a compelling narrative: while private markets faced challenges, private debt soared, boasting a remarkable 27% growth in assets and delivering the highest investment returns among private asset classes. Conversely, infrastructure fundraising dipped to its lowest level since 2013, with returns falling to less than half of the long-term average. Nevertheless, recent acquisitions of large infrastructure GPs by global multi-asset managers signal enduring optimism about the asset class's potential. This sentiment is echoed in State Street’s 2024 Private Markets Study, where the majority of institutions surveyed indicated plans to increase exposure across nearly all private market sub-asset classes. Notably, infrastructure and private debt emerged as the leading asset classes, with 71% of respondents anticipating increased allocations over the next 1-2 years.

?The democratization of investing—significantly accelerated by the rise of index funds and ETFs—has granted individual and institutional investors simplified access to markets. While this trend has primarily benefited traditional markets, limiting private market access to a select few, change is on the horizon as the world’s largest asset managers aim to integrate the fastest-growing asset classes with innovative investment vehicles.

At the end of H1 2024, BlackRock announced its acquisition of Preqin, a leading provider of private markets data solutions, in a strategic effort to 'index the private markets.' Earlier this year, the asset manager secured an agreement to acquire Global Infrastructure Partners, underscoring its goal to bolster its infrastructure investment position. Meanwhile, in early September, State Street and Apollo Global Management unveiled their collaboration on a private credit ETF—the SPDR SSGA Apollo IG Public & Private Credit ETF. Additionally, Vanguard’s newly appointed CEO articulated a vision to extend low-cost investments into private markets, signalling a significant shift from the company’s traditional core indices.

With private markets now valued at over $13 trillion and ETFs attracting billions in inflows each month, the merging of these two worlds could drive the continued expansion of private markets, particularly in private credit and infrastructure investments.

(Sources: McKinsey Global Private Markets Review 2024; State Street 2024 Private Markets Outlook)

Fund Watchlist

We are thrilled to present the third edition of our Fund Watch List. This meticulously curated list is the result of collaboration among senior investors across Europe, offering unique insights into the funds that have captured the attention of our seasoned professionals. It stands as a testament to the collective expertise and diverse perspectives within our investment community. Curious to delve into the full list? Click here to explore potential opportunities and emerging trends shaping the investment landscape.

( abrdn , Aegon Asset Management , Arcus Infrastructure Partners LLP , Fidelity International , Columbia Threadneedle Investments EMEA APAC , DNB Asset Management , ELEVA Capital , Federated Hermes Limited , GQG Partners , Nartex Capital , SKAGEN Funds , Candriam , DPAM , Kairos Partners SGR , MAPFRE , Ossiam , Vanguard , and Arcano Partners )

We welcome your insights and reflections on these selections. Do any of these funds resonate with your current strategies and observations?