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.
The Fund posted a strong absolute return in 2023, with heavy exposure to the rallying US market driving many of the gains. Performance was, however, behind the benchmark for the period, with some disappointing sector positioning offsetting generally strong stock selection. Among the top-performing stocks for the year was Salesforce, a cloud-based client relationship management software company, which performed strongly on the back of strong third-quarter results which saw subscription revenue reaccelerate. The company, which has strong climate targets and ratings, assists customers to track and report environmental data.
There was a strong contribution from Watts Water, a US industrial company that manufactures water flow regulation and control products including backflow preventers, filtration systems and drainage devices that help improve water quality. Munich Re, a global financial services company offering re-insurance services for natural catastrophe risks and integrating TCFD Climate-Related Disclosure in governance, Fund and risk management, was also a significant contributor to the Fund’s performance.
The main negative influence on relative performance was the lack of exposure to some of the major winners across the US technology sector. These included several members of the so-called ‘Magnificent Seven’ technology giants, notably Nvidia, Apple, Meta (Facebook) and Amazon. An offsetting factor was the Fund’s zero exposure to energy as a weaker oil price reined in the sector’s performance. Owning no real estate companies in the Fund also added value.
Watch our 2023 Fund overview video from Jonathan Toub, Portfolio Manager of the Natural Capital Transition Fund.
We introduced Xylem and Veralto to the Fund as we expect to see increasing long-term demand for these water equipment manufacturers’ products as part of our Fund’s Sustainable Oceans theme. We started a new position in EDP Renovaveis, a Spain-based renewable energy company, as we believe it will benefit from its solar and wind energy projects. We also purchased a new holding in US semiconductor manufacturer Analog Devices, which is a market leader in the high-barrier-to-entry analog semiconductor space. The company has set targets to achieve 100% of manufacturing powered by renewables by 2025 (achieved 54% as of 2022), carbon neutrality by 2030 and net zero by no later than 2050.
We exited Infineon Technologies, the German semi-conductor manufacturer, as it faced increasingly stiff competition, and UK utility Severn Trent as UK water companies faced mounting criticism about their activities.
Progress by environmental lawmakers is patchy, indicating uncertainty on the timing and direction of several key pieces of legislation. The European Union (EU) recently enacted a groundbreaking law that sets ambitious targets for restoring degraded ecosystems across the continent. The European Parliament reached provisional political agreement on the European Commission’s proposed Urban Wastewater Treatment Directive. Elsewhere, changes in legislation on the monitoring of microplastics and ‘forever chemicals’ are moving towards a ‘polluter pays’ principle. This should benefit our holdings in Xylem and Tetra Tech as they take steps to remove harmful plastics.
However, the EU has diluted proposed deforestation regulation and some member states have withdrawn support for its nature restoration law.
Against this backdrop of transformation, we believe financial markets are not efficiently pricing the costs and consequences of natural capital depletion or taking the necessary measures to reduce biodiversity loss, regenerate our planet and transform our economy into one that is nature positive. Our Fund seeks to address and exploit these market inefficiencies by investing in both solution providers (companies contributing to the protection of natural capital) and transition-orientated companies (companies aligning their business models for a nature-positive world).
Name: AI Natural Capital Transition Global Equity Sec ID: LU2366405319Benchmark Name: MSCI All Country World Net Index [TR, NR, USD]Reporting Currency: USDInception Date: 30/11/2021Report To Date: Results at: 2023-12-31
1M
3M
6M
YTD
1 Year
2Y Ann
3 Years
3Y Ann
5 Years
5Y Ann.
10Y
10Y Ann.
Since Inception
S.I Ann.
Return
5.84
10.66
5.34
18.83
-6.39
-
-10.82
-5.35
Benchmark
4.80
11.03
7.26
22.20
-0.12
18.25
5.75
74.04
11.72
114.40
7.93
3.75
1.78
Relative Benchmark
0.99
-0.33
-1.79
-2.76
-6.27
-14.04
-7.00
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 MSCI All Countries World Index (the “Benchmark” or the “Index”). The reference benchmark is not aligned with all of the environmental or social characteristics promoted by the Fund.
Investment and 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. Derivatives risk: Derivatives are instruments that can be complex and highly volatile, have some degree of unpredictability (especially in unusual market conditions), and can create losses significantly greater than the cost of the derivative itself.
Illiquid securities risk: Certain assets held in the Fund could, by nature, be hard to value or to sell at a desired time or at a price considered to be fair (especially in large quantities), and as a result their prices could be very volatile.
Derivatives risk: Derivatives are instruments that can be complex and highly volatile, have some degree of unpredictability (especially in unusual market conditions), and can create losses significantly greater than the cost of the derivative itself.
Sustainability risk: The level of sustainability risk to which the Fund is exposed, and therefore the value of its investments, may fluctuate depending on the investment opportunities identified by the Investment Manager.
Full information on the risks applicable to the Fund is detailed in the Key Investor Information Document (KIID) and Prospectus.
Prospectus
KIID
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.
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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
