Outlook for Sub-Funds
Triodos Sustainable Bond Fund
The outlook for 2015 remains constructive, although the Greek elections made it clear that the problems in Europe’s periphery are still far from over. A lack of structural growth and reforms in these countries will not be resolved by the ECB buying up government bonds. The low oil price caused the geopolitical situation to enter a new phase. Political tension and social unrest in the Middle East will increase further as a result. Russia is faced with dwindling financial reserves and the negative impact of sanctions. Due to these sanctions Russian banks are no longer able to place new issues and a new financial crisis should therefore not be ruled out. Such a crisis could have negative repercussions for countries such as Austria, France and Italy, as banks in these countries have major interests in Russia.
The outlook for corporate bonds for the year ahead remains mildly positive. Valuations of many corporate issues are still quite rich, in part because of the strong demand for high-quality debt issues, as well as the ECB’s assets purchase programme. Due to the market’s recent volatility, credit spreads in some areas, especially in the oil and gas sector, have become more attractive. In the information technology and consumer goods sectors more issues by US companies are expected. Due to the ongoing weak economic situation, many companies will need to downgrade their optimistic growth and earnings expectations to bring them more in line with reality. The weaker prospects for various sectors require a selective approach. These issues, as well as the volatile behaviour of the financial markets, will determine the investment decisions of Triodos Sustainable Bond Fund going forward.
Triodos Sustainable Equity Fund
The outlook for equity markets remains favourable. This is due to the combination of moderate economic growth, low energy prices and a recovery of consumer spending. After the share price rises witnessed in recent years some caution seems in order. If capital market rates should rise too quickly, or in case of geopolitical unrest, the outlook could deteriorate. When selecting sectors and individual stocks the earnings growth potential will explicitly be taken into account. The fund’s positioning therefore emphasizes companies that operate in sectors with autonomous long-term growth drivers, such as information technology, luxury consumer goods and healthcare.
Triodos Sustainable Mixed Fund
We are positive about the development of the global economic cycle, which is accompanied by a recovering labour market and improved lending. There are considerable differences between countries in terms of economic growth and monetary policy. Low inflation, the weak euro and low commodity prices will boost growth in Europe, whereas the United States is likely to see its first interest rate hike in 2015. Coupled with political risks in the eurozone, tensions in Ukraine and the uncertain economic outlook for Japan and China. This may cause financial markets to become more volatile. We will take advantage of the expected increase in volatility on the financial markets when implementing our tactical policy. Against the background of this growth scenario we prefer the riskier equity asset category to bonds. According to our data, equities have a neutral valuation from a historical perspective and are relatively attractive in comparison with most other asset categories.
Triodos Sustainable Pioneer Fund
We believe that the Healthy People segment may be in for some breathing space following its recent strong performance. Sentiment will be determined largely by the announcement of takeovers and the degree to which the preference of investors for defensive stocks remains in place. Better-than-expected economic developments may entice investors to start buying stocks of a more cyclical nature. These stocks can be found for instance in the Clean Planet segment, where they include companies that focus on commodity prices (recycling) and water treatment, and in the CSR Pioneers segment. In the Climate Protection segment manufacturers of solar cells appear attractively valued following their recent share price falls. Especially companies that may benefit from the expected strong growth of the US solar energy market offer potential.
Luxembourg, March 27, 2015
Board of Directors of Triodos SICAV I
Pierre Aeby (Chairman)
Albert van Zadelhoff