Monthly commentary - Mackenzie Betterworld Team

Written by the Mackenzie Betterworld Team

Market overview

Markets declined modestly in February, characterized by volatility in equities. AI and tech stocks saw corrections, while gold remains a stable hedge against market uncertainty.

The minutes from the January Fed meeting revealed a cautious approach due to stalling inflation progress, leading to uncertainty about future monetary policy and impacting investor sentiment. Mixed signals from US economic data, including the Consumer Price Index (CPI), Producer Price Index (PPI), and employment reports, influenced market behavior. The US imposed tariffs on Canadian goods, energy, and critical minerals. Canada retaliated with countermeasure tariffs on US goods.

Portfolio and Sector review

Mackenzie Betterworld Global Equity Fund

The Mackenzie Betterworld Global Equity Fund performed in line with its benchmark (MSCI World ex Fossil Fuels Index) for the month. Stock selection in financials and health care contributed to portfolio performance while stock selection in industrials detracted most from portfolio performance.

European financials demonstrated strength throughout the month, evidenced by the positive performance of portfolio holdings Adyen, Unicredit, and ING Groep.

Adyen's second-half results exceeded expectations, showcasing its attractive value propositions in the global payments sector. The company's modern tech stack and holistic banking license strategy are key drivers of growth. Unicredit delivered solid fourth-quarter results, with guidance surpassing consensus and its valuation aligning with the European sector average. ING's CET1 ratio of 13.6%, down 160 basis points over 18 months due to share buybacks, indicates surplus capital of €3 billion compared to the 12.5% target, providing potential for additional share buybacks this year.

On the industrials front, a few portfolios companies stock price declined throughout the month and provided an outlook for portfolio managers to tactically add to the portfolio.

United Rentals investors are concerned about a slowdown in non-residential construction, despite management maintaining a solid outlook. The company abandoned the acquisition of H&E due to competitive bidding reducing IRR potential. We support management's cautious approach to M&A as they explore other potential deals that could be more beneficial to stakeholders. Prysmian experienced a sell-off following its Q4 results call, with cautious messaging on Power Grids margins likely aimed at managing expectations ahead of the CMD. The positive outlook is driven by factors such as energy transition, grid spending, electrification, and growth from US onshoring.

Mackenzie Betterworld Canadian Equity Fund

The Mackenzie Betterworld Canadian Equity Fund performed in line with its benchmark (S&P/TSX Composite Fossil Fuel Reserves Free Index) in February. The fund's stock selection in the utility and industrials sectors contributed most to portfolio performance. However, stock selection in the information technology and financials detracted from the portfolio's overall performance.

Gold has proven to be a reliable hedge against uncertainty, with analysts projecting its price to reach around 3000 and potentially increase further. Additionally, commodity prices are expected to see a 15-20% upside during uncertain times, benefiting the Canadian portfolio. Portfolio companies like Agnico and Wheaton, known for their strong sustainability practices, have positively impacted the portfolio's performance.

The acquisition of Innergex by CDPQ significantly boosted Innergex's stock price, positively impacting the Canadian portfolio. Industrial stocks showed mixed performance, while portfolio holding Canadian Pacific's focus on rail transportation provided stability in an uncertain environment. In the real estate sector, stocks like Choice Properties REIT performed well, despite potential impacts from the HBC bankruptcy.

Team Engagement

The Betterworld team met with Prysmian, an Italian-based global cable solutions provider leading the energy transition and digital transformation. Prysmian is well known to develop resilient, high-performing, sustainable and innovative cable solutions in the segments of Transmission, Power Grid, Electrification and Digital Solutions.

Following their transformative acquisition of US-based Encore Wire, the team sought to understand how the addition of Encore impacts Prysmian's Science-Based Target emission goals. We were pleased to hear that the company remains committed to its established decarbonization path, noting that sustainability is fully integrated throughout their business. We anticipate an update at Prysmian’s Capital Markets Day at the end of March.

Prysmian noted that they consider the sustainability aspects of other companies during M&A decision-making. Before communicating and closing acquisitions, they analyze the ESG aspects of a target acquisition, including their SASB report, sustainability report, circularity disclosures, and strategy. This includes KPIs of sustainable revenues from sustainable products, recycled content, and some social KPIs.

Proxy Voting

The Betterworld team participated via proxy in two company annual shareholder meetings in February: one with a new German portfolio holding in power generation and energy technology, and the other with the US technology hardware firm, Apple.

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