Market backdrop
The global economy performed steadily in 2023 despite the ongoing effects of tighter monetary policy and elevated energy prices. Much of that was down to the resilience of the US, which grew more quickly in 2023 (2.5%) than in 2022 (2.1%). China also picked up pace over the year, albeit well below expectations, as it emerged later than others from COVID restrictions.
It was a buoyant year for equity markets, though not without bouts of heightened volatility. The major event of the first quarter was the collapse of two medium-sized US regional banks following a run on their assets. However, fears of contagion across the financial sector eased as the US monetary authorities moved rapidly to guarantee savers’ deposits.
The rebound from the dismal returns seen in 2022 continued in the second quarter as the emergence of artificial intelligence technology created huge enthusiasm among investors given the significant cost and efficiency benefits it promised.
However, the rally reversed in the third quarter as worries grew that the main central banks would keep interest rates at elevated levels amid signs that underlying inflationary pressures were still high.
In the fourth quarter, markets rebounded impressively as the US Federal Reserve (Fed), perhaps eyeing a likely slowdown in 2024, reversed its narrative of ‘higher-for-longer’ interest rates by indicating cuts were in the pipeline for the coming year. With the Fed, followed by the Bank of England and eventually the European Central Bank, appearing to halt their rate hiking cycle, equity markets set aside subdued economic data to end the year on a firm footing.
Watch our 2023 Fund overview video from Max Burns, Portfolio Manager of the Climate Transition Equity Fund and Head of Equity Research at Aviva Investors.
The Fund posted a strong absolute return, supported by exposure of around 70% to the rallying US equity market. For climate-themed portfolios in 2023, the weaker performance of the energy sector was a useful tailwind as the price of oil traded lower. Our lack of exposure to energy, together with an underweighting of consumer staples companies in an environment of sharply rising food prices, added value for the Fund at a sector level.
The Fund’s underperformance of its benchmark was largely a function of not owning some of the major winners across the rallying US tech sector such as Apple, Amazon and Meta given their insufficient climate credentials. Of the stocks held, the main detractor was Rentokil Initial, an adaptation play on a warmer climate leading to increased pest breeding. The UK-based pest control firm struggled to integrate into its business its acquisition of US peer Terminix.
The strongest individual stock contributor was Dutch-based microchip manufacturer ASM International. The company has been positively exposed to the wide semiconductor market as it develops, manufactures, markets and services machines used to produce semiconductors. ASM International has driven higher structural growth by producing tools that are the most energy efficient on the market, reducing total cost of ownership and energy intensity for its customers.
In addition, ASM International’s tools have been critical in manufacturing more energy efficient chips – as an example, historically ASM International’s tools have reduced electron leakage, and therefore energy waste, by 1,000x. For the next chip advancement, ASM International’s tools will play a key role in improving semiconductor energy efficiency by 20-30%. ASM International is also the only semiconductor equipment provider who has an SBTi net-zero target approved (by 2035) as well as its near and long-term targets.
Other standouts included software giant Microsoft, after beating earnings expectations it showed strong growth in its data centre segment and PTC, a developer and distributor of software and software-related services that can be used to optimise components for minimal environmental impact.
Given the unclear outlook for the global economy, not to mention numerous geopolitical uncertainties, we maintained a cautious stance within the portfolio during 2023. While our largest sector overweight by some margin was industrials, we were careful to maintain a defensive tilt in our exposure.
Notable trades within the year included the purchase in June of US technology giant Nvidia. Whilst we had some concerns around valuation, these were outweighed by the secular shift away from CPU servers in data centres to the GPU offering from the company. This shift is primarily driven by the significant energy efficiency gains of using GPU’s versus CPU’s – as an example, Nvidia’s latest GPU, Blackwwell-100, is expected to improve energy efficiency by up to 25x versus previous generations. This represented a $1 trillion market opportunity for Nvidia and its competitors. The company has upheld commitments to achieve 100% renewable electricity for its operations and data centres by 2025 and reduce scope 1 and scope 2 emissions while being positively exposed to cloud computing and the low carbon energy transition.
We also started a new position in ATS, a Canadian manufacturer and designer of automation systems for niche manufacturing end-markets. We saw the company as being well positioned with exposure to sectors that have a role in the low-carbon transition. With revenue exposure to the transportation sector, it has had influence in the EV market through provision of solutions for battery production. In the food and beverage sector, it helps to decrease wastage through monitoring and packaging solutions which is also an important low carbon solution.
Thematically, we became more watchful on the prospects for wind turbine manufacturers. Some negative news flow from the sector underscored the reality that good climate credentials do not necessarily translate into profitability.
Looking out into the medium term, one could try to predict what global equities will return or which stocks will lead or lag. Instead, we maintain a three-to-five year three-dimensional view of the sustainable global equities landscape. We take comfort that our three-pronged approach to evaluating companies in terms of achieving sustainable profitable growth, positive climate outcomes and operational sustainability sets the stage for our continued alignment with robust companies.
We remain encouraged by the positive outcomes that came out of the COP 28 negotiations. There was a greater recognition of climate science in the final COP text than in previous COP deals, with the final text recognising the importance of the Paris Agreement targets and the emission reduction pathways put forward by the UN’s Intergovernmental Panel on Climate Change. On finance, and particularly financial system reform, there were some very important steps forward.
One hundred and eighteen countries signed a pledge to triple global renewable energy capacity by 2030, complemented by 50 of the world’s fossil fuel majors agreeing to bring their production related emissions down to zero by 2050 and eliminate methane leaks/emissions by 2030. Although the final COP deal text is not legally binding, it is serves as a basis for future regulations and commitments which further strengthens our conviction in the climate equities landscape looking forward.
Fund Name: AI Climate Transition Global EquitySec ID: LU2157504775Benchmark Name: MSCI All Country World Net Index [TR, NR, USD]Reporting Currency: USDInception Date: 29/09/2020Report To Date: Results at: 2023-12-31
1M
3M
6M
YTD
1 Year
2Y Ann
3 Years
3Y Ann
Since Inception
S.I Ann.
Return
5.69
11.12
7.05
20.19
-2.23
7.66
2.49
27.73
7.81
Benchmark
4.80
11.03
7.26
22.20
-0.12
18.25
5.75
36.21
9.97
Relative Benchmark
0.84
0.08
-0.19
-1.65
-2.11
-8.96
-3.08
-6.23
-1.96
Past performance is not a reliable indicator of future performance.
Performance basis: Mid to mid, in the share class reference currency, gross of tax payable by the Fund with income reinvested. Net figures are net of ongoing charges and fees. Net and Gross performance does not include the effect of any exit or entry charge. The Fund's performance is compared against the (the “Benchmark” or the “Index”). The reference benchmark is not aligned with all of the environmental or social characteristics promoted by the Fund.
Investment risk & currency risk: The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.
Equities risk: Equities can lose value rapidly, can remain at low prices indefinitely, and generally involve higher risks — especially market risk — than bonds or money market instruments. Bankruptcy or other financial restructuring can cause the issuer's equities to lose most or all of their value.
Counterparty risk: The Fund could lose money if an entity with which it does business becomes unwilling or is unable to meet its obligations to the Fund.
Emerging market risk: Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.
Derivatives risk: Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.
Specialist Fund Risk: Certain of the Fund's investments may be more susceptible to foreign government policies, including tax incentives and subsidies, as well as political support for certain environmental initiatives and developments. Under certain market conditions, the Fund may underperform funds that invest in a broader array of shares in global companies, for example, funds that do not provide any screening of companies undertaking fossil fuel activities.
Full information on risks applicable to the Fund are in the Prospectus and the Key Investor Information Document (KIID).
Prospectus
Key Investor Information
Note for UK Investors: This Fund is domiciled in Luxembourg and is authorised by the Commission de Surveillance du Secteur Financier (CSSF). The Fund is recognised in the UK under the Overseas Funds Regime but is not a UK-authorised Fund and therefore is not subject to UK sustainable investment labelling disclosure requirements. UK investors should be aware that they can make a complaint about the fund, its management company, or its depositary. However, complaints may not be eligible for resolution by the UK’s Financial Ombudsman Service and any claims for losses related to the management company or depositary will not be covered by the Financial Services Compensation Scheme (FSCS). UK investors should consider seeking their own financial advice before making any decisions to invest and refer to the scheme prospectus for further information.
THIS IS A MARKETING COMMUNICATIONUnless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice of any nature. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. The legal documentation and the subscription documents should be read before an investment is made. Portfolio holdings are subject to change at any time without notice and information about specific securities should not be construed as a recommendation to buy or sell any securities.
For Investors located in EU/EEA countries, the Prospectus and Key Information Document (‘KID’), as well as the latest annual and semi-annual reports of Aviva Investors SICAV are available, free of charge from the registered office of the fund located at 2 rue du Fort Bourbon .L-1249 Luxembourg, Grand Duchy of Luxembourg, or from www.eifs.lu/aviva-investors. The Prospectus is available in English. Where a sub-fund of Aviva Investors SICAV is registered for public distribution in a jurisdiction, a KID in the official language of that jurisdiction will be available.
For investors located in France the Fund documentation is also available at the registered office of the local agent: BNP Paribas Securities Services, 3 rue d’Antin, 75002 Paris, France.
For investors located in Italy, the Fund documentation is available at the following local agent’s offices:
Allfunds Bank S.A.U, Legal Department Italy, via Bocchetto, 6, 20123 Milan, Italy
Société Générale Secrities Services S.p.A, Via Benigno Crespi 19/A, 20159 Milano, Italy
For investors located in Spain, the Fund documentation is available at the office of the local agent:Allfunds Bank S.A, Calle de los Padres Dominicos, 28050 Madrid, Spain
For investors located in Switzerland, the Fund documentation is available at the Swiss representative’s office BNP PARIBAS, Paris, Zurich branch, Selnaustrasse 16, 8002 Zurich, Switzerland.
For Investors located in United-Kingdom, the Fund documentation is also available at the UK facilities’ registered office Aviva Investors Global Services Limited, 80 Fenchurch Street, London, EC3M 4AE, United Kingdom.
Where relevant, information on our approach to the sustainability aspects of the fund and the Sustainable Finance disclosure regulation (SFDR) including policies and procedures can be found on the following link: https://www.avivainvestors.com/en-gb/capabilities/sustainable-finance-disclosure-regulation/
In Europe this document is issued by Aviva Investors Luxembourg, acting as the Management Company of the fund, with its registered office located 2 rue du Fort Bourbon, L-1249 Luxembourg, Grand Duchy of Luxembourg. Aviva Investors Luxembourg is supervised by the Commission de Surveillance du Secteur Financier, R.C.S Luxembourg B25708. In the UK this document is issued by Aviva Investors Global Services Limited, registered in England No. 1151805, with its registered office located at 80 Fenchurch Street, London, EC3M 4AE. Aviva Investors Global Services Limited is authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178.
In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.
Compliance approval code: RA25/0063/31122025
