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Weekly insights from the Trail

Three things that got the team talking this week

December 15, 2023January 12th, 2024
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1. Pizza party…

The most predicted thing of 2023, a recession, never happened…for now…

You can find all types of supporting data that suggests a recession is on the way (see charts below), but we have dodged it all year.

As we head into 2024, recessionary forecasts remain elevated. The Bloomberg economist survey places the probability of a contraction at 50%. Deutsche Bank surveyed their customers, and 37% of respondents think a hard landing is the biggest risk for the US in 2024. What do you think?

Source: UBS (December 2023)

US implied policy rate over the next year

Source: Longview Economics, Macrobond (December 2023)

Source: Apollo (December 2023)

2. ESG is maturing…

Whilst it’s been a strong year for the Magnificent 7, it hasn’t been so good for solar / renewable energy or electric vehicle companies. It is tough across the resources sector to get projects done, which is impacting the pace of the transition. Clean Energy Council data shows just 509 MW of renewable and storage projects reached financial close in Australia in 2023. And in the US, they had just 288 MW of wind-power capacity added in 3Q.

We recently wrote about why the S3 Global Opportunities Fund has been cautious about investing in renewable energy stocks and where we see better opportunities in the energy sector here. Spoiler alert – one of these companies is Schneider Electric.

Schneider Electric helps its customers reduce their electricity consumption and carbon footprint by offering solutions such as smart meters, sensors, software, automation, lighting, heating, cooling, and electric vehicle charging. Schneider Electric benefits from growing demand for energy efficiency solutions from various sectors such as buildings, industries, data centres, and infrastructure. Schneider Electric also has a diversified geographic exposure and a solid financial performance.

Source: Clean Energy Council (December 2023)

Source: S&P Global Market Intelligence, Bloomberg (December 2023)

3. Just keep travelling…

Another theme that surprised the team through the year was just how much demand for travel there was. We’ve shown a lot of travel charts this year, but we have one more as we head into the Christmas/Holiday period. The US corporate is back to 82% of pre-Covid levels, whilst leisure travellers are at 122% of pre-Covid levels. If that recession continues to evade us, how long will this theme continue?

Source: Evans (December 2023)

Chart/meme combo of the year:

Will rates go down (nearly) as fast as they went up?…

US implied policy rate over the next year

Source: Bloomberg (December 2023)

Disclaimer

This article is prepared by Firetrail Investments Pty Limited (‘Firetrail’) (ABN 98 622 377 913, AFSL 516821) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625) (‘the Funds’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the relevant Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Links to the Product Disclosure Statement: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

Links to the Target Market Determination: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

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