Monthly commentary - Mackenzie Betterworld Team

Written by the Mackenzie Betterworld Team

Portfolio and Sectors review

The Mackenzie Betterworld Global Equity Fund slightly underperformed its new benchmark (MSCI World ex Fossil Fuels Index) for the month. Stock selection in financials and utilities detracted most from portfolio performance while stock selection in consumer staples and materials contributed positively to help offset portfolio underperformance.

Veolia Environnement, a French water, energy and waste recycling management services company, was negatively impacted by French politics sentiment over the month resulting in it’s share price falling by around 7.6%. On the fundamental front and in the team’s view, Veolia’s earnings resilience remains underappreciated by the market. Around 50% of it’s EBITDA comes from infrastructure-like activities and approximately 80% of it’s EPS growth up to 2027 is expected to come from synergies and cost savings. This puts the company in a favorable financial position for the upcoming years. Another team’s holding ING Groep, reported mixed Q3 results as lending margins soften over the period. In the team’s view, ING remains one of the more attractive capital return stories in the sector with expectations that over the next three years the bank can return more than 40% of its market cap. On a positive note, Darling Ingredients stock price was up over +11% for the month. The team believes that earnings will benefit from continued demand growth for feedstocks from the biofuels industry. Additionally, the elevated capex cycle for the Diamond Green Diesel joint venture is expected to wind down and be reflected in the company financial statements.

The Mackenzie Betterworld Canadian Equity Fund slightly underperformed its new benchmark (S&P/TSX Composite Fossil Fuel Reserves Free Index) in November. Stock selection in financials and utilities detracted most to fund’s performance. Team’s holding in independent power producers (IPP’s) Boralex, Innergex and Northland Power sold off following the U.S. elections as negative sentiment towards the renewable energy space resurfaced. The team remains optimistic on the space for the following reason:

• Across Canada, request for proposals (RFP’s) for new power generation and storage are being issued to supply increased electricity demand projections driven by data centers, electrification, reshoring of production and population growth. Power demand could grow by 50 to 100% over the next couple of decades, following a period with little investments over the last 15 years.
• The Betterworld team in conjunction with street analysts believe that further sector consolidation should occur in this space, as private capital seeks out value in infrastructure platforms. IPPs will continue to search for a lower cost of capital given the significant growth opportunities enumerated above and be constructive of the larger players we hold.

Proxy Voting

The Betterworld team participated via proxy in one company meeting in November with North American water solutions provider, Primo Water. The meeting was called to vote on the merger between Primo Water and private water distribution firm Blue Triton. Primo Water shareholders will own approximately 43% of the newly formed Primo Brands total fully diluted issued share capital, with current BlueTriton shareholders holding the remaining 57% pro forma equity stake.

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