The top performing sectors this year are the most carbon intense

Anthony Doyle

Firetrail Investments

After March 2020, it isn’t too difficult to think of an investing environment that would give global equity investors sleepless nights. Outside of a global pandemic, the combination of rising interest rates, high inflation, extreme gas and energy prices, and the Russian invasion of Ukraine is about as difficult a backdrop for equity markets as one could think up.

Equity investors and companies had a lot to consider in Q1, and the cocktail of negative factors weighed heavily on risk sentiment during the quarter, leading to a loss of 8.2% for the MSCI World Index. The Australian Dollar – a beneficiary of higher commodity prices - rose 3.0% versus the US Dollar, further weighing on returns for Australian investors.

Delving deeper, our analysis of the top performing sectors in the MSCI World Index over the quarter highlights that the most carbon intense sectors (such as energy, materials, and utilities) outperformed less carbon intense sectors. This reflects the run-up in global commodity prices in 2022, with the Bloomberg Commodity Index up around 25% since the start of the year, returning to levels not seen since 2014. The Energy sector was the top performing sector in the quarter, benefiting from the 39% increase in oil prices to over USD100 per barrel.

In the Firetrail S3 Global Opportunities Fund, we have built a high conviction portfolio of 34 value and growth companies with a sustainable edge. This doesn't mean we can't get exposure to rising prices in traditional energy markets. For example, the Fund has exposure to companies that are involved in creating substitutes to diesel fuel via Archer Daniels Midland and Darling Ingredients.

Archer Daniels Midland (ADM) is an efficient global distributor and processor of soft commodities including wheat and soybeans. ADM crushes raw soybeans and keeps the margin between that and the soybean oil (used in energy) and soybean meal (used as animal feed).

Darling Ingredients (DAR) makes renewable diesel – a unique product that is a 100% substitute for diesel without the associated emissions. DAR has strong relationships built over many years that allow it to collect from over 120,000 restaurants and other businesses across North America. DAR has a 40% share of the collection market in cooking oil, one of the key ingredients in renewable diesel. 

There is a long growth runway for biofuels as part of the energy transition, and there are alternatives out there to the most carbon intensive companies.


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This communication was prepared by Firetrail Investments Pty Limited (ABN 98 622 377 913, AFSL 516821) (Firetrail) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) (the Fund) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625). It is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. Any persons relying on this information should obtain professional advice before doing so.

Anthony Doyle
Head of Investment Strategy - Firetrail S3 Global Opportunities Fund
Firetrail Investments

Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk...

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