MegaTrends: another wave of rotation – software, copper, China advances?
The megatrend market has broadened further: capital is not leaving growth stories, it is flowing out of chips and into cloud services, software and the areas needed to build out networks. The global structure is stable, but for now investors are looking for the winners of the physical and software implementation phase.
Within the megatrend universe, the primary hunting ground of our VIG MegaTrend Equity Investment Fund , all three main strategies were profitable over the past 30 days, yet a substantial reshuffling took place behind the scenes. The race was won this time by demographics-focused megatrends (+4.0%), closely followed by the innovation-focused (+3.8%) and the environment-focused categories (+2.7%).
Performance of the megatrend strategies over the past 30 days
Sub-trend performance and the drivers of the rotation
Behind the reshuffling relative to the previous month lay a classic, mature-market rotation wave and several structural macro drivers. Investors did not withdraw capital from megatrend investments; they began instead to reallocate existing gains from the “overheated” segments into areas that are still lagging but hold high growth potential.
- From hardware to software. The stars of the year so far, the semiconductor manufacturers (Semiconductors: -8.9%), went through a significant correction, while cloud providers (Cloud Computing, +15.0%) and software companies (Software, +13.6%) soared. Chipmaker shares had become extremely overbought in the first half of the year (even after the correction, semiconductor stocks were still up 76% year to date in mid-August), but when the second-quarter earnings reports came in, although they were excellent, they only beat analyst expectations marginally therefore, investors began to take profits. Capital did not leave the AI universe, however; it took a new direction. The market started to price in that, after the accumulation of hardware (GPUs), the software deployment and cloud infrastructure phase can begin. Capital flowed towards those enterprise software vendors and cloud providers that have started to monetise AI integrations in practice.
- Copper and the energy transition. The physical constraint on AI ( Energy Transition / Copper (+16.9%) ) was the strongest performing sub-trend of the month. Building AI data centres, upgrading networks and constructing electrical infrastructure requires an enormous amount of copper. And the market has come face to face with the physical reality that global copper mining is struggling to keep pace with this demand.
- The Chinese turnaround. After months of decline, oversold Chinese technology stocks took flight: the China Internet sub-trend produced a spectacular rebound (+10.4%). The Chinese technology sector had become oversold in recent times because of geopolitical tensions and the slowdown in Chinese economic growth. Investors have now realised that the valuations of Chinese tech giants (such as Alibaba and Baidu) have fallen to historic lows, even as AI development and revenue growth have picked up.
- Moderate pressure on renewable energy. The classic green sectors continued to struggle (Clean & Renewable Energy: -6.1%, Solar: -5.6%, Hydrogen: -5.0%), yet thanks to the surge in copper and raw materials, environment-focused megatrend investments still managed to close in positive territory overall. Although the energy transition is inevitable in the long run, renewable energy projects continue to suffer from the high cost of capital caused by the rising interest rate environment, and from other problems like construction delays, for example, as well.
Monthly and year-to-date (YTD) performance leaderboard
In the year-to-date (YTD) ranking the semiconductor sector (Semiconductors, +75.8%) still holds first place, but its lead has narrowed. Biotechnology and healthcare remain in the leading group after last month’s rally (Genomic Revolution: +53.0%, Alternative Medicine: +43.9%). Thanks to China’s “resurrection”, the YTD loss of China Internet has eased from -25.1% to -14.5%.
Return Download
This is a marketing communication. Making a well-informed investment decision requires obtaining detailed information. Please read the Key Information Document, the official prospectus, and the management regulations available at the distribution points of the Fund and on the website of the Fund Manager (www.vigam.hu) for detailed information regarding the Fund’s investment policy, distribution costs, and the possible risks of investing. Costs related to the distribution of the investment fund (purchase, holding, sale) can be found in the Fund’s management regulations and at the distribution points. Past performance is not a reliable indicator of future returns. Future returns from the investment may be subject to taxation, and tax and duty information relating to individual financial instruments and transactions can only be accurately assessed based on the individual circumstances of each investor, which may change in the future. It is the investor’s responsibility to obtain information regarding tax obligations.
The data contained in this information material are provided for informational purposes only and do not constitute investment advice, an offer, or investment consulting. VIG Investment Fund Management Hungary Ltd. accepts no liability for investment decisions made based on this information or for their consequences. The license number of the Fund Manager for alternative investment fund management (AIFM) is: H-EN-III-6/2015. The license number of the Fund Manager for UCITS fund management (collective portfolio management) is: H-EN-III-101/2016.