Please find below our interim Investment Market Update as at 23rd July 2021.
Blue Sky Investment Market Update
We are now entering the rapids
Typical, I had a few days off and what happens on the first day? Equity markets tumbled.
There is nothing the team nor I could do but entrust our positioning and our strategies. Only last week I warned of some choppy waters ahead and this week, we encountered the first of the rapids.
So, what happened?
The headlines screamed fear.
- S&P 500’s worst one day fall since May
- FTSE 100 falls 2.34%, worst session in two months
- Oil tumbles 7%
- Pound slammed by the US dollar
- Dow falls by its biggest percentage since last October
- European markets suffered their biggest fall of 2021
The worst session in two months? No big deal as this is what markets do. Guess what? Buyers have used the fall in prices as a buying opportunity and now many sectors and stocks are at a higher level than before the pull back.
What caused it?
Stocks slumped causing investors around the world to rush into safe haven assets after the delta coronavirus variant cast a shadow over the economic recovery, while tension between the US and China escalated.
Bloomberg reported “In a reversal of the reopening trade that has powered this year’s equity rally, cyclical companies bore the brunt of Monday’s rout. Commodity, financial and industrial shares led losses in the S&P 500, which fell the most since May. Airlines and cruise operators tumbled amid concern over further travel restrictions.
In other words, ‘it was risk off and caution on’.
The Guardian reported “the fall in prices is a reminder that escaping from this restricted economy is likely to be a messy affair”.
It’s important not to generalise
Choosing the right assets, in the right way, at the right stage of the economic cycle is the key. I cannot stress this enough.
Since last Friday, the 16th of July up until today 23rd of July, this is the performance of some of our selected investments:
- Our new Blue Sky Thematic portfolio is up 1.07%
- Global Real Infrastructure is up 1.34% (Foresight)
- Sustainable Real Estates securities is up 1.48% (Foresight)
The reason for showing these figures is to reinforce our emphasis on themes which are being supported by the flows of government and corporate money. The Thematic portfolio is a recent launch, and we increased our holdings in Sustainable real estate substantially at our last switch on the 12th May.
Foresight provide insight
The Foresight infrastructure assets have performed strongly since the beginning of May after a shaky period and so we thought it would be a good idea to share with you some of their recent upbeat comments.
Global Real Infrastructure Fund
The fund’s positive performance has been driven in part by a resurgence in global renewable energy stocks, with notable performance coming from US listed companies, Hannon Armstrong Sustainable Infrastructure and Next Era Partners.
Renewable energy remains the fund’s largest sector exposure. Foresight believes this is a compelling long-term allocation despite recent volatility. The fund’s holdings continue to perform well operationally and are benefiting from the growth in renewable energy demand.
In terms of portfolio news, here are some of the headlines:
- Scatec, a Norwegian-listed owner of renewable energy projects in emerging markets, announced significant updates for two of the projects held in their short-term pipeline:Scatec achieved preferred bidder status for a $1billion 540MW solar and storage development in the Northern Cape Province of South Africa. This project is unique requiring dispatchable power from 5:00am to 9:30pm, achieved using batteries to store excess energy during daylight and distributing it when solar radiation is less prevalent.
They have also established a partnership with renewables developer ACME to build a 900MW solar project in Rajasthan, India. This is an asset with significant scale and will materially increase Scatec’s exposure to India, which is one of the fastest growing renewable energy markets in the World.
- Boralex, a Canadian-listed renewable energy owner, updated investors with its strategic plan and investment objectives for 2025:The company aims to double installed capacity to 4.4GW by 2025, significantly increasing its solar capacity in the US which is now its primary market.
Boralex is also looking to enter new markets in Europe and expects to invest $6billion of additional capital over the next five years.
- Northland Power, a Canadian-listed independent power producer, announced that Poland’s Energy Regulatory office had awarded the company an index linked 25-year Contract for Difference (CfD) for its 49% stake in the Baltic Power Offshore wind project.
FP Foresight Sustainable Real Estate Securities Fund
The fund’s portfolio remains focused on companies that are expected to benefit from substantial sector-specific tailwinds and that have best-in-class sustainability standards. Logistics, healthcare, data centres and supermarkets remain the largest sectors, with new areas such as student accommodation and early learning centres being added to the portfolio over the past year.
Geographically, the fund has continued to diversify. Exposure to Canada and Australia has gradually increased and these countries continue to be attractive real estate markets for the fund. The initial portfolio contained 22 companies which has increased over the course of the year to 29 companies.
Recent activity saw Canadian logistics REIT Dream Industrial complete an equity raise of CAD$287.5million to partially fund the acquisition of a CAD$1.3billion pan-European logistics portfolio. The fund participated in the equity raise increasing its holding to a 9% target weight, making it one of the largest allocations within the fund.
- The acquisition effectively triples Dream Industrial’s European exposure and increases its development pipeline.
- A positive move for the company as Europe lags other developed markets in e-commerce and online consumption penetration, providing potential for growth in logistics demand.
- The company also announced its Green Financing Framework which subsequently allowed it to issue “green bonds” in the form of debentures to partially fund the acquisition.
- Over the next few years, a solar panel initiative will take place across the portfolio in Canada and the Netherlands.
The winds of change
The winds of change are blowing through markets. There are huge opportunities but there are also huge potential pitfalls. It’s important not to generalise and it’s important not to take unnecessary risks. Optimising returns by managing risk and reward is what it’s all about. Here at Blue Sky, we are excited by what’s coming down the tracks, not fearful.
Just before I go, please take a look at our new Sustainability Policy on our website. It’s so important we all play our part.
Have a great weekend.
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.