Thematic Commentary – 30 August

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.

Genomic Revolution

August was a landmark month for the genomics sector. At the end of July, Guardant Health achieved a pivotal milestone with the FDA approving its Shield™ blood test as primary screening option for colorectal cancer. Shield is also the first blood test for CRC screening that meets requirements for Medicare coverage. These pave the way for broader adoption of less invasive, highly effective cancer detection methods, potentially transforming early diagnosis and treatment protocols. Also at the end of July, Intellia Therapeutics received Clinical Trial Application authorization by a UK Regulatory Agency to initiate a Phase 1/2 study evaluating its in-vivo CRISPR-Cas9 therapeutics for treatment of antitrypsin deficiency-associated lung disease. This serves as validation of Intellia’s modular gene insertion platform. The merger between Recursion and Exscientia has created a powerhouse in AI-driven drug discovery by combining Exscientia’s precision chemistry design and small molecule automated synthesis technology with Recursion’s scaled biology and translation capabilities. This merger is poised to enhance the efficiency of drug discovery processes, a critical factor in addressing unmet medical needs. These advancements reflect the portfolio’s commitment to invest in the future of healthcare that is increasingly personalised, efficient and effective.^1,2

Artificial Intelligence & Robotics

August 2024 has demonstrated the accelerating impact of AI and robotics, with our AI and Robotics portfolio well-positioned to capture this growth. The portfolio continues to emphasise Platform and Infrastructure Software stocks within the AI stack. Palantir reported strong Q2 2024 earnings, with revenue increasing 13% year-over-year to $533 million. This growth reflects the rapid adoption of its new AI platform, solidifying Palantir’s role as a leader in AI-driven data analytics. Teradyne remains a key player in collaborative robots that enhance automation in manufacturing. These innovations are crucial in advancing productivity and safety in healthcare and logistics. Teradyne’s Q2 2024 earnings exceeded management’s guidance. In the semiconductor sector, TSMC continues to dominate with Q2 2024 revenue of $17.53 billion, driven by robust demand for its advanced semiconductors in AI and high-performance computing. Meta showcased the power of its AI-driven initiatives, reporting Q2 2024 revenue of $32 billion, up 11% year-over-year. Meta’s growth was fueled by significant gains in ad revenue and user engagement. Finally, Rocket Lab also reported impressive Q2 2024 results, with revenue reaching $68 million.^3,4,5,6

Innovation

August was a pivotal month for disruptive technologies, particularly in AI, genomics and energy storage. Tesla made significant progress with its Optimus humanoid robot, which now leverages advanced motion capture technology, indicating Tesla’s ambitious push beyond automotive into AI-driven robotics. This development is expected to streamline automation across various sectors, setting a new standard for industrial robotics.

Palantir continued its upward trajectory, with a 55% year-over-year increase in US commercial revenue, fueled by the success of its AI Platform (AIP). This surge is part of Palantir’s broader strategy to lead in enterprise AI, reflected in their raised full-year guidance. Their ability to convert AI prototypes into scalable, production-ready solutions is rapidly positioning Palantir as a frontrunner in the AI space.

The portfolio also benefited from the announced merger between Recursion Pharmaceuticals and Exscientia, which is set to create a powerhouse in AI-driven drug discovery. This merger combines their respective AI platforms to accelerate breakthroughs in precision medicine, potentially transforming the pharmaceutical landscape. 10x Genomics reported advancements in AI-driven healthcare tools, further integrating AI into personalised medicine and enhancing the precision of genetic research.^7,8,9

Circular Economy Enablers

August was a pivotal month for the circular economy. A surge in sustainable packaging equities, driven by stricter European regulations and rising consumer demand for eco-friendly products, led the charge. This reflects a broader shift toward corporate responsibility, as companies adapt to meet environmental standards and capitalise on new opportunities to build trust with customers.

United Rentals reported record growth in August 2024, driven by a 14% year-over-year increase in revenue, reaching $3.6 billion for Q2. This robust performance was fueled by increased demand for rental equipment across various sectors, particularly in construction and infrastructure projects. The company highlighted its ongoing commitment to the circular economy by expanding its fleet of eco-friendly equipment, which now constitutes 25% of its total offerings.

Tomra Systems experienced a 15% rise in revenue, driven by increasing demand for its recycling and sorting technology. The company processed over 40 billion used beverage containers globally, reflecting the impact of stricter European recycling regulations.^10,11

Environmental Impact 100

August has underscored the remarkable pace and scale of the global energy transition. A key highlight was the approval of the first stage of Sun Cable’s groundbreaking project, which aims to supply Singapore with solar energy generated in Australia. Spanning 5,000 kilometers, this undersea cable will connect a massive 24GW solar and wind farm to Singapore. In the US, the rooftop solar market is experiencing explosive growth, with Sunrun now responsible for 1 in every 5 rooftop solar systems nationwide. This surge reflects the broader shift towards decentralised energy, driven by technological advancements from companies like SolarEdge and Enphase. China added an astonishing 25GW of wind and solar capacity in July alone, hitting its renewable power target 6 years ahead of schedule. In Europe, the launch of one of the cheapest EVs in the market by China’s second oldest automaker—at just $25,000—may begin to accelerate EV ownership. The most groundbreaking development was Andrew Ng’s new climate emulator, which simulates the potential of Stratospheric Aerosol Injection (SAI) to cool the Earth. This tool models how dispersing reflective particles in the atmosphere could reduce global temperatures. Explore the emulator at planetparasol.ai. ^12,13,14,15

Global Sustainable Infrastructure

August underscored the strength and stability of sustainable infrastructure equities. As markets faced heightened volatility, our ETF demonstrated remarkable resilience, performing exactly as intended by maintaining price stability and low volatility—key features embedded in its design. While major indices like the S&P 500 and Nasdaq-100 experienced significant drawdowns, our ETF’s low volatility ensured it acted as a stabilizing force in investors’ portfolios. Key sectors, such as renewable energy grids, advanced telecom infrastructure and environmental services, showed robust performance despite broader market challenges. The ETF’s diversified exposure to these areas, coupled with a focus on companies with inflation-protected revenues and high dividend yields, provided strong protection against market fluctuations. The ETF’s emphasis on impact-driven companies, aligned with global sustainability goals, further validated its investment strategy. This approach not only prioritises financial returns but also contributes positively to social and environmental objectives, reinforcing the ETF’s position as a cornerstone of future-focused infrastructure investing.¹⁶

Sustainable Future of Food

August 2024 brought into sharp focus the complexities of the global food system, better understood as a series of interlinked, regional food systems rather than a single global entity. These systems have been strained by macroeconomic challenges, conflicts and climate-related disruptions. The companies in our Sustainable Future of Food portfolio have faced these challenges but remain robust, often holding monopoly or oligopoly positions in their markets, positioning them to navigate these difficulties while driving the transition to a more sustainable food system. As highlighted in The Breakthrough Journal, livestock production accounts for 60% of global agricultural emissions, with beef being the primary contributor. Strategies like shifting from beef to lower-impact proteins and intensifying livestock production could significantly reduce emissions. Technological advancements, rather than climate change, have driven a fourfold increase in global agricultural output over the past 50 years, emphasising the importance of innovation in our portfolio’s strategy. This summer, increased investments in food technology startups and regulatory changes, such as the EU’s sustainable packaging initiatives, have further propelled the shift towards sustainability. These developments, along with changing consumer behaviors, create strong tailwinds for our portfolio’s long-term growth.¹⁷

USA Environmental Impact

As the U.S. gears up for the upcoming election, the theme of American Reshoring has emerged as a critical driver of domestic clean energy investment, with strong bipartisan support. The reshoring of industries such as advanced manufacturing, EVs and clean energy remains a strategic priority. This focus aligns with the investments made in our USA Environmental Impact portfolio. In August, our portfolio benefitted from robust performance across our three sub-themes:

1. American Energy Transition: Companies like SolarEdge, Nextracker and First Solar led the charge in domestic solar, which has seen acceleration due to favourable policies under the Inflation Reduction Act.

2. American Reshoring: Several of our holdings, such as Wesco and Clean Harbors, are making significant strides. Wesco has expanded its supply chain services to support U.S.-based manufacturing, while Clean Harbors has positioned itself as a leader in environmental services critical to the reshoring process.

3. American Innovation: Our investments in companies like Tesla and On Semiconductor highlight the innovation sub-theme, which is central to maintaining U.S. leadership in clean energy. Tesla continues to expand its EV rollout, while On Semiconductor continues to make advances in energy-efficient chips.¹⁸

Cybersecurity and Data Privacy

August showcased the resilience and strength of leading cybersecurity firms amid ongoing global cyber threats. Despite the broader market’s volatility, CrowdStrike beat earnings expectations, demonstrating robust revenue growth, even in the face of recent challenges. Similarly, Palo Alto Networks reported better-than-expected earnings, coupled with a $1 billion stock buyback program, which buoyed investor confidence and drove its stock higher.

Zscaler also impressed with its strong earnings report and optimistic forward guidance, reinforcing its position as a leader in cloud security. Not to be outdone, SentinelOne, despite mixed earnings, continues to capture market share. Its Singularity platform, known for its autonomous capabilities, has set new benchmarks in threat detection, positioning SentinelOne as a formidable competitor to CrowdStrike, especially in scenarios where speed and automation are critical. On the cyber threat front, healthcare providers like Prospect Medical Holdings were severely impacted by ransomware and high-profile attacks continued to underscore the escalating demand for cutting-edge cybersecurity solutions. As cyber threats grow in frequency and complexity, the sector’s robust performance and strategic positioning highlight its long-term investment potential.¹⁹

Digital Payments Economy

August marked another strong month for the digital payments sector, with key players delivering solid earnings results. PayPal reported better-than-expected earnings, driven by continued growth in its digital wallet and BNPL services, which have seen increased adoption across its user base. Similarly, Block (Square) exceeded analyst expectations, with its Cash App and merchant services continuing to perform robustly, reinforcing its ecosystem strategy.

Visa also reported impressive earnings for its fiscal third quarter, benefiting from a strong recovery in cross-border transactions and travel-related spending. The company’s strategic investments in digital payment technologies and fintech partnerships have solidified its position in the global market. Mastercard followed suit, posting earnings that reflected solid growth, particularly in digital and cross-border payments, further highlighting the ongoing recovery in global travel and commerce.

The performance of these companies underscores the resilience of the digital payments sector, driven by continuous innovation and increasing consumer reliance on digital financial services.²⁰