How to Buy
          9 min. read

          Thematic Commentary – 31 May

          Thematic Investing

          Written by: Tom Barker, CAIA

          Published: 10 June 2023

          Close

          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 food1

          A new McKinsey & Company report explored how the agricultural industry is facing economic pressures and the need for more sustainable practices, leading to the adoption of next-generation automation technologies. Farmers continue to face rising input costs, it is estimated prices for inputs such as fertiliser and crop protection chemicals have risen by 80 to 250% over the last few years. Additionally, farmers face rising labour costs and the impact of climate change on yields. Automation offers a solution to these challenges ranging from semi-automated technology, such as assisted steering, to fully automated systems like weeding robots. These technologies use sensors, analytics, robotics, and equipment to enable smarter decision-making and increased efficiency in farming. What’s more, automation can deliver significant value, McKinsey estimate that autonomous use cases across orchards and vineyards have the potential to deliver more than $500 per acre per year in value, doubling to even quadrupling returns on automation investment.

          Environmental Impact 100234

          The Inflation Reduction Act continues to exert a positive influence over decision-making and investments in green technologies across a range of environmental subsectors. Take Maxeon Solar Technologies, a leading solar technology company specializing in photovoltaic solutions. Maxeon has returned +73.04% this year to the end of May. Its solutions continue to accelerate the global transition towards clean energy and a more sustainable future. At its Q1 2023 results on May 10th, the company revised FY2023 sales higher and surprised markets with a swing to profitability announcing EPS of $USD 0.46 compared to an EPS loss of $1.45 a year earlier. The company noted strong customer demand and announced it booked several new projects in North America “with production now booked out through 2025.” It also noted it was “actively looking for opportunities to expand (its) North American supply chain” given the favourable backdrop of clean energy subsidies provided by the Inflation Reduction Act. Similarly, Germany-based SMA Solar Technology noted it was exploring investing in a factory in the US to capture subsidies on offer by the Inflation Reduction Act.

          Education Technology and Digital Learning5

          Generative AI had somewhat of a dualistic impact on EdTech stocks in May. On the one hand, we saw declining share prices of online learning platforms like Chegg and Pearson. Pearson plunged by 15% following concerns over the impact of OpenAI’s chatbot ChatGPT and the vulnerability of other companies to similar technological threats. The share price had been performing well recently, with quarterly group sales up 6% and positive profit growth. However, Pearson’s decline was prompted by the admission from US rival Chegg that it had experienced a significant impact on its customer growth rate due to student interest in ChatGPT. On the other hand, learning platform Udemy, up +10% over May, pointed to its increasing number of monthly purchasers. Udemy has incorporated AI into its content discovery engine which is expected to enhance the user experience and attract more learners. The platform’s strength and ability to adapt to emerging technologies make it a valuable marketplace for content creators. Generative AI has no doubt created a bifurcation in the EdTech industry, AI related threats and opportunities will continue to define the landscape and it is likely tomorrow’s winners will be those embracing the opportunities by integrating the technology into their solutions.

          Introducing Circular Economy Enablers

          This month we are pleased to introduce our SFDR Article 9 Rize Circular Economy Enablers UCITS ETF (‘CYCL’). This strategy seeks to invest in enabling companies that potentially stand to benefit from our transition to a more circular economy. These are companies that view the shift to a circular economy as a means of achieving truly sustainable growth by decoupling productive economic activities from the linear consumption of the Earth’s finite resources and thereby reducing pressure on our ecosystems and environment.

          CYCL invests across seven Key Product Value Chains identified by the European Commission where urgent, comprehensive and coordinated action is most needed to achieve “The Transition to a Circular Economy” objective of the EU taxonomy for sustainable activities. These are aligned to the EU’s Circular Economy Action Plan. CYCL considers several business models that are driving circularity and incorporates a proprietary framework that optimizes exposure to the most impactful companies whilst also assessing financial strength.

          Cybersecurity and Data Privacy6

          Artificial intelligence is taking its first major evolutionary step in the form of Generative AI. This is already revolutionising the cybersecurity landscape, making it more efficient, lean, and ultimately boosting companies’ margins. For example, CrowdStrike has introduced Charlotte AI to its Falcon security platform. The goal is to democratise cybersecurity by allowing all users, regardless of technical expertise, to ask simple questions about network vulnerabilities and receive real-time answers. The incorporation of AI into the platform is expected to help organisations overcome the shortage of qualified cybersecurity workers. Analysts believe that CrowdStrike’s approach, combining a graph database with machine learning algorithms, positions them well to lead in this space. Another company, SentinelOne, has incorporated Generative AI features into its threat-hunting platform that includes a large-language model (LLM) natural language interface and an embedded decision-making neural network. These AI tools enable threat researchers to ask complex questions about threats, receive detailed answers within seconds, identify attacks more easily and manage enterprise security through command execution

          Medical Cannabis and Life Sciences7

          One country where the medical cannabis sector is growing rapidly is the UK, with CBD oil and other cannabis-based products gaining recognition for their therapeutic potential. The government’s decision to permit the prescription of cannabis-based medicinal products (CBMPs) under certain circumstances has marked a significant shift in public health attitudes and legislation. Rigorous research and clinical trials will continue to remain crucial to establish the efficacy and safety of medicinal cannabis in the UK. With increasing evidence and adaptable social care systems, accessible and effective CBMPs may benefit more individuals. However, achieving this potential requires a delicate equilibrium. The healthcare sector must navigate between harnessing benefits, ensuring safety, and upholding regulations and ethics. Though challenging, success could significantly improve the lives of many UK patients.

          Digital Payments Economy8

          One key barometer of payments activity is payments technology platform Paypal who reported its Q1 2023 results in May. The company saw a 9% increase in quarterly revenue, reaching $USD 7.0 billion, driven by a 10% rise in total payments volume of $354.5 billion for the quarter. The company experienced better-than-expected ecommerce activity, particularly in its unbranded checkout solutions, such as Braintree. Despite surpassing expectations, PayPal’s share price dropped by approximately 15% following the announcement. Analysts attributed this decline to a lower-than-anticipated operating margin outlook for the year, as well as concerns over tighter margins in the ecommerce segment, which was the main driver of the growth in payments activity. However, PayPal’s CEO, Dan Schulman, highlighted the higher yield of cross-border payments, indicating that they positively impact the company’s revenue although specific numbers regarding the impact of cross-border payments were not separately reported. At the end of Q1, PayPal had 433 million active accounts, a 1% year-on-year increase. PayPal expects its operating margin to expand by 100 basis points for the full year, and in Q2, it anticipates revenue growth of 6.5-7% on a spot basis.

          Pet Care9

          One emerging trend in the pet care market is the growing popularity of customization. Customers are attracted to the variety of pet care products available and many businesses now allow customers to personalize their purchases, including design, colour, size, style, and material. In order to cater to the individual requirements of customers, various features can also be incorporated, such as distinctive decorations and bedding, easy portability, personalized accessories, integrated storage compartments, holders for food and drinks, comfortable seating arrangements, different types of raw materials, and other attractive elements. This customization trend is expected to fuel the market growth of pet care products. Meanwhile, a key challenge for the pet care market is the increasing competition. The market is highly competitive, with numerous players offering a wide range of goods and services. The growth of e-commerce platforms has made it easier for new players to enter the market and compete with established brands. This intensified competition poses a challenge for businesses, as they not only compete with local retailers but also with international players with significant resources and economies of scale.

          Emerging Market Internet and Ecommerce10

          Following the end of the zero-Covid strategy and a robust first quarter, Chinese macroeconomic indicators for April revealed a deceleration in activity. Imports experienced a 7.9% decline, while industrial production only grew by 5.8% compared to the previous year. It’s important to note that April’s figures were measured against the depressed data from the same period last year, during the Shanghai lockdown. Meanwhile, the property market downturn intensified, with a 6.2% year-on-year drop in property investments in April, surpassing the 5.8% decline observed in March. Chinese equities performed below the MSCI Asia ex-Japan Index, which registered a return of -1.8%, largely due to the outperformance of Korean and Taiwanese tech stocks in May. In Japan, real GDP for the first quarter increased by 1.3% year on year, driven by strong private consumption and non-residential investment. The April Consumer Price Index (CPI) experienced further acceleration, with the Bank of Japan’s key inflation measure (CPI excluding fresh foods and energy) rising by 4.1% year on year, marking the largest increase since 1981. Investors are increasingly optimistic about Japan’s recovery from the deflationary stagnation of the past. The TOPIX, outperformed other large developed markets with a return of 3.6%.

          References

          1

          McKinsey, “Trends driving automation on the farm”, May 2023. Available at: https://www.mckinsey.com/industries/agriculture/our-insights/trends-driving-automation-on-the-farm

          2

          Maxeon, ” Maxeon Solar Technologies Announces First Quarter 2023 Financial Results”, May 2023. Available at: https://mediaroom.maxeon.com/2023-05-10-Maxeon-Solar-Technologies-Announces-First-Quarter-2023-Financial-Results

          3

          SMA Solar, “SMA success in North America: Installed capacity in the large-scale plant sector exceeds 20 gigawatts”, April 2023. Available at: https://www.sma-uk.com/newsroom/current-news/news-details/news/5325-sma-success-in-north-america-installed-capacity-in-the-large-scale-plant-sector-exceeds-20-gig.html

          4

          World Energy, “SMA Solar Begins Work on 20 GW Inverter Factory in Germany”, April 2023. Available at: https://www.world-energy.org/article/31541.html

          5

          Bloomberg, Pearson, Chegg, Udemy May 2023

          6

          CrowdStrike, SentinelOne, Morningstar May 2023.

          7

          Outlook, “Medical Cannabis in The UK And How It Is Evolving “, May 2023. Available at: https://www.outlookindia.com/outlook-spotlight/medical-cannabis-in-the-uk-and-how-it-is-evolving-news-289006

          8

          FXCIntelligence, “PayPal revenue rises in Q1 23, but margins disappoint shareholders”, May 2023. Available at: https://www.fxcintel.com/research/analysis/paypal-revenue-rises-q1-23-margins-disappoint-shareholders

          9

          Yahoo, “Pet Care Market size to grow by USD 72.82 billion from 2022 to 2027, Increasing pet ownership to drive the market growth – Technavio”, May 2023. Available at: https://finance.yahoo.com/news/pet-care-market-size-grow-194500772.html?guccounter=1

          10

          Bloomberg May 2023

          Related posts

          • 1
          • 2
          • 3

          Select Your Country

          United Kingdom
          Germany
          Italy
          Switzerland
          Austria
          Denmark
          Finland
          Ireland
          Luxembourg
          Netherlands
          Norway
          Spain
          Sweden

          Select Your Investor Type

          ======