Monthly commentary - Mackenzie Betterworld Team

Written by the Mackenzie Betterworld Team

Portfolio, Regional and Sectors review

US equities recorded their third consecutive month of gains supported by positive Q4 earnings announcements. Optimism for a Fed pivot on interest rates continued to be a supporting factor for US equities. Additionally, China economic weakness continued to be a headwind for Hong Kong listed names. Japanese holdings in the global portfolio helped offset some of the Asia region’s weakness (Sony Corporation and Sumitomo Mitsui Financial Group). Mega cap stocks continued to drive market performance in January. Within the Mackenzie Betterworld Global Equity Fund, Information technology, financials and consumer staples contributed most to performance, while industrials, real estate and utilities detracted from performance.

Within the Mackenzie Betterworld Canadian Equity Fund, consumer discretionary contributed most to overall fund’s outperformance. Portfolio holding Aritzia was up +19% for the month. The company demonstrated recovery to investors on inventory levels and gross margin pressures. This sets up the company to reinvigorate their differentiated affordable luxury offering and deliver on their US store expansion strategy, where they are enjoying a 12-month payback on their new store investment.

Another notable performer for the fund in January was Tricon Residential (+23%). The company was acquired by Blackstone, the world’s largest alternative asset manager. Tricon’s core business was single family rentals in the US Sunbelt where they owned a portfolio of 38,000 single family homes. The firm also manages third-party capital across three residential property types: single-family, multi-family and residential developments. The acquisition was inline with our investment thesis as Blackstone was Tricon’s largest asset management client and eventual ownership was assigned a high probability of occurring at some point in our analysis.

Outlook

• Improving economic sentiment is being supported by better-than-expected GDP growth of +3.1% and employment reports in the US.
• While these economic stats help to temper recession concerns, they also give central banks further motivation to contain inflation and slow down the starting point for potential interest rate cuts in the spring.
• Looking at industrial activity measured by manufacturing PMI, the global indicator increased from 49 to 50, the level that starts to show economic expansion. North America showed strength in new orders and production activity. Europe remains at depressed levels while Asia also lags North American levels.
• The team believes this environment remains supportive for larger companies with strong balance sheets who have demonstrated their ability to operate successfully in a high interest rate environment.

New Holding

SunOpta

• SunOpta is a global plant-based, healthy food and beverage company with a strong focus on sustainability which the Betterworld team added to the Canadian portfolio in October of 2023.
• Founded 50 years ago, the company manufactures natural, organic and specialty products sold through retail and foodservice channels. Key platforms are shelf staples and refrigerated plant-based beverages, “better-for-you” snacking and oat-based ice cream & yogurt.
• SunOpta operates as a manufacturer for leading natural and private label brands, and also produces its own brands, including SOWN®, Dream®, and West Life™.
• Sustainability has always been part of the company culture and is reflected in the firm achieving zero waste at six of its seven manufacturing plants in the U.S. and Canada.
• With US household penetration of plant-based milk at 53%, SunOpta’s total addressable market opportunities are attractive.

Engagement Update

The Betterworld team met with Italian cable manufacturer, Prysmian. Prysmian’s cable solutions are the backbone of next-generation grids, connected to cleaner, greener energy from offshore wind projects and enable advanced telecom networks with fibre optics. Company CEO of 22 years, Valerio Battista, is expected to step down this year so it was an opportune time to discuss the board’s approach to executive compensation and review the key performance indicators applied to incentive programs including health & safety metrics, sustainability targets and performance benchmarking relative to industry peers. The team was also pleased to see the progress the company made on establishing a board of directors’ skills matrix that ensures the attributes of successful oversight are reflected in board composition and future additions. 

Proxy Voting

In January, the Betterworld team participated via proxy in 3 company meetings with CGI, Costco and Visa.

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