Market commentary: Nov 2024

Investment performance

We’re on the home straight to Christmas and the end of 2024 and what an interesting year it’s been! Taming inflation, falling interest rates, the rise of artificial intelligence, soft landing for the US economy, and now the prospect of a Trump presidency. All of this has produced strong returns for the year (our client portfolios are up around 1% since the US election) with international equities in the driver’s seat and all other sectors performing well.

Share prices in the US are elevated and sentiment remains optimistic therefore we are wary of a looming peak in the market. We responded in July with a 2% cut to the weighting of shares in all client portfolios. A further reduction of 2% is under consideration.

“Drill baby drill!”

During the 2024 presidential campaign Donald Trump mocked climate science and electric vehicles. His energy mantra was “Drill baby drill!” It seems his goal is to establish American “energy dominance” around the world and he intends to do this by drilling for more oil and gas. But Trump’s energy ambitions are likely to run into real-world limits. Whether Trump achieves energy dominance comes down to decisions by private companies based on how they see energy supply-demand in the global marketplace.

Fortunately, our infrastructure fund managers have a different mantra for US (and global) energy. They say, “decarbonisation is the future”.

Both the infrastructure funds in client portfolios are proceeding on the premise that energy production is transitioning and there are substantial investment opportunities. Decarbonisation and net zero targets set by many governments will continue to create long term value for investors while contributing to a more sustainable future. Electricity utilities face a huge opportunity for investment to cater for increasing demand for renewable energy as well as rising power demand from electrification.

The US company Xcel Energy is a great example. Growth is driven by investment in decarbonising power generation assets by replacing coal with wind; grid advancement; smart meters; and electric vehicle infrastructure.

Meanwhile European electricity utilities face an enormous wave of capital investment as EU countries strive to match the European Commission’s renewable energy targets. In Italy, Terna operates the high voltage electricity transmission grid. They announced a €16.5b capital expenditure program for 2024 to 2028. Similar investment in renewables is playing out in Spain and the UK where significant investment is required to meet increasing demand.

Whilst Trump plays down the risks of climate change and mocks the climate law as the “green new scam” the market will decide. Trump wants US dominance globally but what’s more American than American solar and American wind? A lot of Republican led states have added thousands of jobs in recent years in wind, solar and battery power. If renewables make economic sense they’ll continue.

Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFP^CM), Director and Financial Adviser