MARKET REVIEW
February was a highly eventful month, marked by significant geopolitical and economic developments. The month began with the Trump administration threatening to impose tariffs on Canada, Mexico, and China, creating initial market jitters. It concluded with a contentious meeting between President Zelensky and President Trump, adding to the geopolitical tension.
Mid-month marked an unexpected rise in inflation figures. The prospect of higher tariffs further fueled inflation concerns, leading investors to reassess their expectations for future interest rate cuts.
Overall, the combination of geopolitical tensions and inflationary pressures contributed to a volatile and uncertain market landscape throughout February.
The Fund ended February with a negative absolute performance, outperforming its benchmark, the MSCI World ND index.
PERFORMANCE COMMENT
The total benchmark performance was down mainly driven by Communication Services and IT sectors, which exhibited negative performance at -5.2% and -1.7%. In contrast, Consumer Staples, a more defensive sector led the market with a performance of 4.8%.
The Fund’s performance ended February above its benchmark which can be fully explained by the implementation of our climate and financial strategies, that we breakdown into the following components:
Climate
- Net Zero Target: The primary objective of aligning with net zero targets had a neutral impact on excess returns..
- Carbon Reduction vs. Benchmark: Efforts to reduce the carbon footprint relative to the benchmark contributed positively to the excess return by +0.14%.
- Exclusions: The exclusions from LOIM Sustainability Investment Policy was added +0.07% to the excess return.
Financial
- Dividend optimisation: our dividend optimisation strategy has contributed positively to the excess return adding +0.04%
- Alpha: our ‘systematic alpha’ added 0.02% to the excess return
This month's positive excess return was driven by effective stock selection while sector allocation contribution was negative.
Sector allocation impacted the excess return by -0.12%, specifically due to our underweight positions in Consumer Staples and Real Estate, and our overweight position in Communication Services.
The strong momentum from our stock selection strategies continued into February, resulting in a positive contribution to our overall performance. Significant gains were mainly due to our strategic positions within the Industrials, and Financial sectors. Notably, our overweight positions in companies like Howmet Aerospace and Leonardo, which demonstrate strong and credible decarbonization perspectives, significantly boosted our performance.
CLIMATE OUTLOOK
Disparities in the Energy Sector
Based on news from last month, the energy sector is witnessing significant disparities in the transition to net zero. BP announced a major shift in its investment strategy, cutting back on renewable energy plans and focusing on 20 new oil and gas projects by 2030. This decision, driven by poor performance and pressure from hedge fund Elliott Management, highlights the challenges faced by carbon-intensive industries in transitioning to new markets. BP's struggle underscores the broader issue of whether to stick to existing business models or risk failure by entering the renewable energy sector.
In contrast, TotalEnergies SE and Air Liquide SA are moving forward with a €600 million joint venture to produce green hydrogen for TotalEnergies' refinery in the Netherlands and supply its petrochemical plant in Belgium. This initiative, part of TotalEnergies' strategy to reduce emissions using low-carbon hydrogen, marks a significant step in their ambition to decarbonize hydrogen consumption at their European refineries by 2030. The projects, expected to be operational by 2027 and 2029, respectively, will leverage offshore wind power and aim to avoid annual emissions equivalent to 500,000 tons of carbon dioxide.
These contrasting approaches within the energy sector highlight the momentum, forces, and challenges faced by carbon-intensive industries in the transition to net zero. Companies can either maintain their existing business models and face declining profits or take the risk of entering new markets.
