Firstly, I want to wish you a Happy New Year and provide you with some thoughts on last year’s performance and emerging themes.
Unforeseen headwinds
Looking back at 2024, positives from earlier in the year were outweighed by some unforeseen headwinds in the last quarter. Unfortunately, a handful of holdings contributed to a poor end to the year. Our allocation to the life science tools sector, namely American instrumentation companies Thermo Fisher and Danaher, was affected by soft Chinese demand. Also, during the third quarter’s reporting season, the absence of 2025 revenue expectations from these two companies spooked the market. Disappointing test trials at Novo Nordisk just before Christmas weren’t the gift we wanted. Whilst all three companies are best-in-class within the healthcare sector and remain conviction holdings, we are cognisant that they are currently facing headwinds. However, we are reassured by their current valuations, which are both reasonable and below historic levels.
While it is easy to put the Funds’ performance solely down to the election of Donald Trump — or a perceived change in sentiment towards ESG — the driving factors have been far more related to the macroeconomic backdrop, with the downturn in the Chinese economy a large contributor. Although we don’t have any direct Chinese holdings in the portfolio, China is a large source of global demand, and its slowdown has had wide reaching effects. Our alternatives investments across renewable energy and social infrastructure trusts have hurt performance over the last few years too. Discounts have widened to a weighted sector average of around -30% while Net Asset Values continue to perform well. Discounts typically move inversely to interest rates so as central banks bring down bank rates, albeit slower than prior to the UK budget and US election, we believe these trusts have the potential to contribute positively during the year ahead.
A deeper dive into performance drivers and our outlook can be found in our quarterly commentary.
Author
Harry Gibbon
Investment ManagerHarry joined Quilter Cheviot‘s internship programme in May 2018 and moved to work with Claudia Quiroz and Caroline Langley later that year. He has since been promoted to an Investment Manager and assists with the management of clients’ portfolios for private clients, pensions, trusts, charities and funds, including the Climate Assets Funds.
Harry is a Member of the Chartered Institute of Securities and Investments and he has completed the CISI Chartered Wealth Management qualification and the CFA Certificate in ESG Investing.
Monthly newsletter
Don’t miss the Climate Assets Funds monthly update – delivered straight to your inbox.
Climate Assets Funds
The Climate Asset Funds invests in companies that make a positive contribution to the world, with a strong underpinning of ethical values.