Monthly commentary - Mackenzie Greenchip Team

February 29, 2024

Key takeaways

In further evidence of speculative fever, cryptocurrencies were back to delivering the type of eye-popping gains they enjoyed before Bitcoin lost more than two-thirds of its value in the year following its November 2021 peak.

Core renewable energy indexes were flat for the month, although there are signs of turnaround in the wind industry and price stability in solar.

We believe that cyclical softness will be short-lived for agricultural equipment companies since unit volumes this cycle were significantly lower than in prior ones, and the addition of precision agriculture features will compel farmers to upgrade.

AGCO, in particular, is well placed to serve both new and retrofit equipment in precision ag, and currently trades at less than 10x its earnings per share.

Macroeconomic recap

AI euphoria led to another month of substantial gains in February. Nvidia’s earnings release showed unflagging demand for its very powerful, and very expensive, processors that are the chips of choice underlying the AI architectures being built by technology giants such as Microsoft and Google as well as by smaller - but still stock-value rich - aspirants to tantalizing AI-driven wealth. Perhaps machine learning is at work in the stock market as well, as trading machines (or humans?) have learned very clearly to buy any company that makes mention of AI in its business plans, either as a producer or a consumer. Nvidia has gained approximately 25% for each of the first two months of this year, adding nearly $USD 1 trillion in market value. In further evidence of speculative fever, cryptocurrencies were back to delivering the type of eye-popping gains they enjoyed before Bitcoin lost more than two-thirds of its value in the year following its November 2021 peak. Bitcoin has added 50% in the first two months of this year and has nearly reached that previous high. Away from the digital, crypto, and virtual that were obsessing financial market participants, the real world still struggled with real issues. First among these is ongoing geopolitical deterioration, as Russia makes significant gains in Ukraine. At the same time, the Israeli-Palestinian war continues to diminish Western standing in the non-Western world while also threatening critical shipping lanes and energy supplies. And, not unrelatedly, the narrative of declining and well-controlled inflation is unravelling, with inflation readings showing persistent pressure on labour and service costs, in particular, while energy and other basic commodities have begun to rise from recent lows.

Current positioning and Outlook

It was another challenging month on a relative basis for the Mackenzie Greenchip Global Environmental All Cap Fund, as a small overall gain in our Fund substantially trailed the broader markets. Core renewable energy indexes were flat for the month, although there are signs of turnaround in the wind industry and price stability in solar. European indexes also turned in relatively small gains, while utilities - including Greenchip holdings Enel and EDP - were under pressure due to declining natural gas and electricity prices on the continent. Another warm winter and soft economic performance are the main causes for these price declines, but we believe the market is overestimating the effect of spot power prices on these vertically integrated companies; and that much-improved hydro conditions will help offset any small negative effect of merchant power price exposure. Agricultural equipment companies AGCO and Deere were also lower on the month due to deterioration in the outlook for 2024 sales, particularly in western hemisphere markets. We believe that cyclical softness will be short-lived since unit volumes this cycle were significantly lower than in prior ones, and the addition of precision agriculture features will compel farmers to upgrade. AGCO, in particular, is well placed to serve both new and retrofit equipment in precision ag, and currently trades at less than 10x its earnings per share.

Learn more about the team

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The contents of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) are not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of January 31, 2024. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. Mackenzie Investments, which earns fees when clients select its products and services, is not offering impartial advice in a fiduciary capacity in providing this sales and marketing material. This information is not meant as tax or legal advice. Investors should consult a professional advisor before making investment and financial decisions and for more information on tax rules and other laws, which are complex and subject to change.