Thematic Commentary – 30 September

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.

Innovation

September was a transformative month for markets as the US Federal Reserve officially shifted its monetary policy stance, cutting interest rates for the first time in over four years. This highly anticipated rate cut, driven by softer inflation data and concerns over economic slowdown, sent ripples across asset classes.

Long-duration assets, such as growth stocks and technology companies, benefited from the lowered interest rates, as their future cash flows became more attractive in a lower-rate environment. The rate cut was particularly impactful on sectors sensitive to borrowing costs and future earnings projections. Growth stocks, which had seen some pressure earlier in the year due to higher rates, experienced renewed investor interest. Lower discount rates boosted valuations for these companies, many of which rely on long-term revenue growth. This rotation was evident in the resurgence of tech giants and high-growth sectors, including semiconductors, cloud computing, and green technologies.

This rotation contributed to a significantly different third quarter relative to the second quarter. While the markets began to broaden out to high-quality growth names, other higher-risk, off-benchmark exposures – such as biotech stocks – have not yet rallied, perhaps signaling that a broadening out will occur in a multiple stages across the risk spectrum.¹

Genomic Revolution

Despite genomics names rallying less than market participants hoped during  a month where the US Federal Reserve cut rates, there were several positive developments. Scientists from the University of Washington have unveiled a groundbreaking ‘proof-of-concept’ method showcasing the capability of the Oxford Nanopore sensing platform to read single protein molecules, a major step forward in protein analysis, holding promise for disease research and drug development. Natera announced new data from the GALAXY arm of the ongoing CIRCULATE-Japan trial showing nearly 10x advantage in overall survival at 36 months based on ctDNA status, affirming Signatera’s ability to predict chemotherapy benefit.

On the biotech front, Moderna made significant progress in its mRNA technology platform, expanding beyond vaccines into personalized cancer treatments. In September, the company reported promising early-stage results from its clinical trials on mRNA-based oncology therapies. These developments could unlock a new frontier in cancer treatment, driving innovation within the pharmaceutical industry and boosting investor confidence in long-term growth.^2,3,4

Artificial Intelligence & Robotics 

September has demonstrated the accelerating impact of AI with Platform-as-a-Service companies gaining share. Palantir continued to solidify its leadership with notable new partnerships in its AI-driven platforms. It was awarded a multi-year contract by the U.S. DoD to deploy its AI Platform to enhance real-time battlefield analytics and decision-making, underscoring the critical role of AI in national security. Additionally, Palantir announced collaborations in the private sector, revealed a series of innovations focused on improving predictive analytics for supply chains and ERP systems, and was added to the S&P 500 Index.

In semiconductors, the spotlight shifted to Taiwan Semiconductor Manufacturing Company, which announced a strategic expansion into cutting-edge 2nm chip production. This technology is expected to revolutionize power efficiency and performance, supporting advancements in AI, mobile devices, and high-performance computing. TSMC’s move comes amidst increased geopolitical tensions, but the company’s ability to push technological boundaries reassured investors about the long-term growth potential in the semiconductor industry.^5,6

Circular Economy Enabler

The Rize Circular Economy Enablers UCITS ETF returned +13.20% over Q3 2024. The fund is predominantly a U.S.-focused, quality mid-cap play. It is primarily weighted towards industrials (50%) and materials (32%). This fund ultimately provides exposure to operational efficiency — our circular economy enabling companies are either embracing automation to drive it, or they are enabling others to achieve it. These companies have risen on the soft-landing narrative, benefiting from both the promise of lower rates and expectations of a manufacturing re-acceleration supported by accommodative policy. This has been evidenced through the strong performance of companies like DS Smith, Kadant, and Badger Meter. DS Smith has risen over 50% year-to-date, driven by strategic investments in automation, such as robotics, which have increased productivity and reduced labour costs while addressing the growing demand for sustainable packaging. Kadant, up 22%, is benefiting from its focus on operational efficiency and sustainability, reinforced by acquisitions like DSTI. Similarly, Badger Meter, with nearly a 40% increase, is capitalising on innovations in smart water management, addressing the demand for resource conservation. These companies showcase how investing in manufacturing efficiency supports growth, resilience, and broader industry trends.^7,8,9

Environmental Impact

In a significant move for the semiconductor industry, President Joe Biden enacted legislation that exempts certain U.S. chip manufacturing facilities from federal environmental reviews. This affects projects benefiting from government subsidies under the $280 billion CHIPS and Science Act of 2022 and is particularly significant for U.S. based environmental impact stocks. The reason lies in the prevention of potential delays that could otherwise arise from federal environmental reviews mandated by the National Environmental Policy Act of 1969. This should ultimately increase chip production by allowing projects to proceed more efficiently. As a result, many environmental impact sectors that rely on semiconductors, such as renewable energy and electric vehicles, should benefit from this increased chip availability. Under the CHIPS Act, the U.S. Commerce Department has allocated over $35 billion for 26 projects, including substantial grants to companies like Samsung Electronics, Intel and Micron Technology Inc.¹⁰

Global Sustainable Infrastructure

We developed the Rize Global Sustainable Infrastructure UCITS ETF to offer investors a risk/return profile similar to a traditional infrastructure allocation whilst accessing industries with the strongest growth potential. In Q3 2024, our strategy not only showed defensive characteristics in periods of market volatility but also evidenced the potential for the long term growth of the sustainable infrastructure subsectors it provides exposure to, returning +13.60% over the quarter. Notably, Telecom Infrastructure contributed +5.23% of the returns. This is a focus of the fund as telecoms infrastructure promotes social goals by enhancing connectivity, enabling access to education, healthcare, and economic opportunities, and fostering social inclusion, particularly in underserved and remote communities. Renewable Energy Utilities contributed +1.03% of the returns, underscoring the growing role of clean energy in powering artificial intelligence and other technology sectors. Indeed, this has been highlighted by Microsoft’s recent partnership with Constellation Energy to reopen Three Mile Island, Amazon’s collaboration with Talen Energy on nuclear energy and Meta’s deal with Sage Geosystems to supply its data centers with geothermal energy.¹¹

Future of Food

Sustainable food equities faced several headwinds over the past year, including rising input costs, high financing expenses, and significant supply chain disruptions. However, September’s positive performance builds on a positive run that highlights these challenges are now receding. As cost pressures begin to ease, we’ve noted earnings call commentaries from companies like FMC Corp and Lamb Weston Holdings who are seeing stabilisation, while improved customer and product mixes have bolstered their recovery prospects. The easing of supply chain issues is also a significant factor, as businesses such as John Bean Technologies and Ball Corp have started to recover operational efficiency. In addition, the financial pressures that previously hampered growth are starting to lift. Lower financing costs, driven by a broader macroeconomic recovery and the declining rate environment, are allowing firms to invest in innovation and expand their operations. We believe sustainable food valuations now look attractive with share price movement over the last two years reflecting some of these challenges. Sustainable food companies are well-positioned to capitalise on these improvements, driving future growth. September’s performance signals that the worst may be behind us, and the sector is entering a phase of renewed opportunity, supported by improving market conditions and broader investor confidence.^12,13,14,15

Cybersecurity and Data Privacy

Cybersecurity stocks have faced a volatile few months with returns more or less flat in September. This lack price appreciation has however been constructive for valuations given the Q3 2024 earnings season just passed, when 85% of our companies grew their Q3 revenues and 88% exceeded analyst forecasts for their earnings. The industry continues to exhibit remarkable growth which continues to be underestimated by Wall Street.

One unique aspect of our cybersecurity strategy is that it also includes data privacy and identity access management (“IAM”) companies. We believe these are crucial components of any cybersecurity investment strategy. As cyber threats grow more sophisticated, particularly with the rise of AI-powered bots and deepfakes, the need to secure and control access to sensitive data has become critical. IAM systems help ensure that only authorised individuals gain access to valuable digital assets, protecting against unauthorised access or malicious impersonation. With bots becoming increasingly difficult to distinguish from humans, robust IAM can prevent credential theft and minimise risks from AI-driven impersonation attacks. Moreover, effective data privacy protocols not only safeguard user information but also enhance compliance with evolving regulatory standards.¹⁶

Digital Payments Economy

China’s recent stimulus measures, including interest rate cuts and reduced reserve requirements for banks, have the potential to significantly boost digital payment stocks globally. By stimulating consumer spending and increasing access to credit, the stimulus encourages greater adoption of digital payment platforms, particularly as consumers and businesses shift to more efficient, tech-enabled financial services. Additionally, as China plays a key role in global trade, increased economic activity can drive higher transaction volumes for international digital payment providers, fostering growth in this sector. In September, the Asia Pacific region was the strongest contributor to returns boosted by stocks with notable revenue exposure to China. The stimulus also enhances liquidity and boosts overall confidence in fintech innovations, which can ripple across global markets, making digital payment stocks a more attractive investment.¹⁷