Thematic Commentary – 28 April 2023
In today’s rapidly evolving market, investors need to stay on top of the latest trends and themes that fuel growth. In this monthly publication, we offer our market commentary across our themes, covering new opportunities and potential challenges. By providing a deeper understanding of our themes, we aim to help you make more informed investment decisions and achieve your investment goals.
Sustainable Future of Food
An interesting phenomenon playing out in global food this year is that food prices have actually been reverting to the mean. This runs contrary to much of the sensationalist narrative last year which were that food prices would rise to astronomical levels if we had a long, drawn out war. We’ve had a long, drawn out war, and this isn’t what has played out. Yet, we (everyday citizens) haven’t until now seen a ‘reversion to the mean’ in food prices at the supermarkets. This is principally because supermarkets have been greedy, and stayed at the inflated prices, despite their own margins falling and despite nearly all global supply being back online now. So much supply is now online that we actually have a supply glut in European commodities markets. We know this because Hungary, Poland and Slovakia recently banned grain imports from Ukraine in a bid, apparently, to protect local farmers (!) So we don’t just have regional competition (e.g. US vs EU vs CHINA), but we have intra-EU competition too. Since the Black Sea deal, Ukrainian grain has been diverted via these three countries, but it has created a huge oversupply in these countries, collapsing local prices (hurting their local farmers). This is because more grain came in than could reasonably be put onto ships and exported.
The Inflation Reduction Act’s (“IRA”) simple math is luring billions in foreign investment. Companies are now announcing multi-billion dollar investments in US clean energy. But, what’s even more striking than the pace of commitments is how many are coming from outside of the US. One highlight this month was a joint investment of $USD 3 billion between General Motors and Samsung SDI to construct a new factory in the US. This is the first time the car manufacturer has chosen a South Korean company to supply batteries for its electric vehicles and highlights the growing partnership between South Korea and the U.S. The new facility will launch in 2026 and manufacture two different types of battery cells that use nickel-rich chemistries. The IRA has also resolved many uncertainties for the battery industry. For example, the loosening of sourcing requirements for battery materials and reclassification of cathode active/anode materials as ‘critical materials’ rather than battery materials, means they are eligible for IRA tax breaks. This has benefited two other South Korean companies in the index, EcoPro and EcoPro BM who supply critical materials for batteries, notably to Samsung SDI!
Education Technology and Digital Learning
Education systems continue to implement digital resources, and more are offering online, blended, and hybrid experiences. The pace at which this is happening will differ greatly from one region to another. Whilst this digital transformation across education has advantages such as enabling remote learning, personalization, and collaboration. We must remain cognizant of the potentially negative effects of technology, such as creating distractions, replacing human interactions, and widening the digital divide between students from different socioeconomic backgrounds. Globally, policymakers and philanthropic organizations are initiating ways to increase learner access to education by diverting funding to disadvantaged regions. In Q1 2023 we saw movement with countries and donors committing funds to the UN’s global fund for education “Education Cannot Wait” that is expected to reach 20 million children in 30+ countries over 2023-2026.
Cybersecurity and Data Privacy
An interesting divergence accelerated in the month of April. During the first two months of the year, the performance of most cybersecurity indices had been in line with the Nasdaq 100. However, since the beginning of March, the Nasdaq 100 has soared in value, returning +10.0%. Five constituents: Microsoft, Apple, Meta, Nvidia and Amazon have accounted for a whopping 7.5% of this return, with much of the positive sentiment coming from the success of cloud computing. Meanwhile, cybersecurity valuations have continued to fall. Yet, in the Q1 2023 earnings season, the aggregate year-over-year revenue growth for the cybersecurity basket was 16.03%, and 35.58% for earnings. Furthermore, 84% of the names exceeded consensus analyst forecasts for earnings. The industry is still growing at tremendous pace and whilst 2023 has so far seen 136,569 workers laid off in U.S. based tech companies, cybersecurity continues to remain largely unaffected. One explanation could be that the market is overlooking the vast sums required for R&D by cybersecurity companies to innovate against a threat that is increasingly growing in sophistication. This can weigh on profitability but ensures economic moats remain intact. Needless to say, the relative valuations compared to the Nasdaq 100 look interesting.
Medical Cannabis and Life Sciences
A recent study involving 358 cancer patients has revealed that medical cannabis can alleviate pain and decrease the need for conventional drugs. The study showed that an equal balance of tetrahydrocannabinol (THC) and cannabidiol (CBD), two active ingredients, significantly lowered pain intensity and its impact on daily life. Researchers from the Royal College of Surgeons, Dublin, and the Medical Cannabis Programme in Oncology at Cedars Cancer Centre in Canada, concluded that medicinal cannabis is “a safe and effective complementary treatment for pain relief in patients with cancer.“ They added “our data suggests a role for medicinal cannabis as a safe and complementary treatment option in patients with cancer failing to reach adequate pain relief through conventional analgesics, such as opioids.” Medical cannabis is already used to treat a wide range of conditions including anxiety, insomnia, arthritis, migraines, nausea, PTSD, fibromyalgia and neuropathy.
Digital Payments Economy
Card payment network giants Visa and Mastercard released their latest earnings in April – Q2 2023 for Visa and Q1 2023 for Mastercard. These provide a barometer a global payments activity.
Visa’s quarterly revenues grew 11% year-over-year to reach USD $8 billion. It was the lowest growth since Q3 2021, although exceeded expectations given recent economic conditions. The company saw a 24% increase in cross-border volumes, lower than the 38% growth last year. Payment volumes increased by 10%, with total processed transactions rising 12% to $50.1 billion. Visa predicts a return to travel in Asia, notably China, will increase volume in the second half of the year.
Mastercard also saw quarterly net revenues grow by 11% to $USD 5.6 billion due to robust customer spending and a continued cross-border travel recovery, although this was lower than Q1 2022. Cross-border volumes grew 35% (40% excluding Russia), supported by the re-opening of Asian markets to travel. Revenues from value-added services, such as cybersecurity solutions, rose 21%. Looking forward, Mastercard expects headwinds from higher interest rates and the current banking environment.
Private companies and equity firms are increasingly interested in the pet care sector due to its growth potential. Mergers and acquisitions (M&A) activity in the sector had been slow for a few years, but it is now picking up again, with players in the pet health space becoming attractive buyout targets. Mars Incorporated, the maker of Pedigree dog food products, is demonstrating its commitment to pet care by acquiring veterinary diagnostics firm Heska for $USD 1.3bn. The deal, announced in April, is expected to broaden coverage across diagnostic products, services, and technology, as well as accelerate research and development for innovative solutions, according to Nefertiti Greene, Mars’ President of Petcare, Science, and Diagnostics. UK veterinary product manufacturer Dechra Pharmaceuticals has been in talks with EQT, which has already invested in the UK’s leading pet insurer ManyPets and leading European online retailer Zooplus. However, not everyone is happy. Investment management firm Newton, who own a 0.5% stake of Dechra has rejected the £4.6bn proposal, describing the offer as “opportunistic” and stating that it fails to accurately reflect the company’s product pipeline.
Emerging Market Internet and Ecommerce
April was a case of good news and bad news for emerging markets. Data points confirmed a strong economic recovery in China following its reopening from COVID-19 lockdowns. Q1 GDP grew by 4.5% year-over-year and retail sales were up by 10.6%, both were higher than analyst forecasts. Beijing also reaffirmed its policy stance and vowed to continue supportive fiscal and monetary policy to stimulate the economy. Despite this positive news, geopolitical tensions caused Chinese equities to decline by 5.0% in April. Furthermore, incoming U.S. investment regulations from the Biden Administration particularly weighed on the communication services and consumer discretionary sectors. These seek to guard U.S. technology advances given the growing competition between the two economies and could potentially prohibit U.S. investment in certain sectors in China. Nonetheless, positive returns in other regions helped offset China’s weakness, and the broad MSCI Emerging Markets Index returned -1.1% over the month.
PETZ: Rize Pet Care UCITS ETF
 Reuters, “Polish government bans grain, food imports from Ukraine”, April 2023. Available at: https://www.reuters.com/world/europe/polish-government-bans-grain-food-imports-ukraine-2023-04-15/
 Financial Times, “GM teams with Samsung on $3bn EV battery plant in the US”, April 2023. Available at: https://www.ft.com/content/c4dd239d-36fa-401a-a50e-d1e8ff30884a, and Bloomberg, 28 April 2023
 HolonIQ, March 2023.
 Bloomberg, 28 April 2023.
 The Times, “Medicinal cannabis may help cancer pain and cut need for opioids”, May 2023 Available at: https://www.thetimes.co.uk/article/medicinal-cannabis-may-help-cancer-pain-and-cut-need-for-opioids-f8t0jgjlt
 FXC Intelligence 2023, and Bloomberg 28 April 2023.
 The Times April 2023.
 Bloomberg 28 April 2023.