Weekly Update: Saxo Thematic Investing Performance
Head of Equity Strategy
Summary: The commodities basket was the best performing theme basket last week up 5.9% driven by strong performance across the energy stocks due to the OPEC+ decision last week to cut production by 2mn barrels per day. At the other end of the spectrum all of our green baskets (energy storage, renewable energy, and green transformation) were the worst performing baskets. We have also added a nuclear theme basket to be able to track the interest of this energy source as the energy crisis has clearly put nuclear power back on the map for investors.
Commodities show strength on OPEC+ and weaker USD
The best performing theme basket last week was commodities up 5.9% driven by strong gains across the whole sector as OPEC+ decided on Wednesday last week to cut production by 2mn barrels per day. In addition, the USD showed signs of weakness although the currency back during the week. Themes exposed to the physical world are still our preferred themes and they include commodities, defence, logistics, and renewable energy.
It was the energy companies that delivered the strongest gains in the commodities basket with the best performing stock being Canadian Natural Resources up 17.2% which has a higher sensitivity to oil prices given its higher cost per barrel metrics for its oil sand assets at around $30/brl. The oil company has assets with a long asset-life and low maintenance requirements, on top of a competitive advantage in a world hungry for more oil in the short-term. The company reports Q3 results on 31 October with analysts expecting revenue at CAD 10.6bn down from CAD 11.5bn in Q2 but still up 37.8% y/y. Free cash flow is expected to remain strong in the years to come with CAD 13.5bn expected in 2023 compared to an enterprise value of CAD 97.6bn.
The green baskets were having a red week
All of our green baskets, energy storage (batteries, fuel cells etc.), renewable energy (production of green energy), and green transformation (companies using green energy) were underperforming last week and it has been a trend that we have observed for some time. The disruption in the European energy markets, specifically the electricity markets, is causing a headache for the industry because of pricing regulation making it more difficult to assess asset valuations. In the green transformation basket the EV makers have been under pressure due to enormous input cost pressures from high lithium and aluminum prices.
Nuclear power theme added
We have also added a nuclear theme basket which consists of companies within uranium mining, operation of nuclear power plants, and companies selling technology related to nuclear power. The basket is one way to express investor sentiment on nuclear power, but it is important to note that it is a difficult theme to construct a pure and good exposure profile around. We have also decided to remove the crypto & blockchain and 3D printing theme baskets from our core themes and thus our performance tables because both themes are small and very niche. Both themes are still available on our trading platforms under research for inspiration, but they are no longer part of our overview of themes to digest flows in the market.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
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