DNCA Invest Sustain Climate

"Higher for longer": Rising interest rates have been the defining theme of this economic start to the fall, as inflation and fiscal concerns have fueled investor jitters. On the one hand, rising energy prices (oil up 35%–40% from July lows), combined with resilient economic activity—both in terms of growth and employment—led several major central banks to adopt a more restrictive monetary policy to contain this resurgence of inflation (the Fed, ECB, BoJ, and RBA all raised key interest rates by 25 basis points). On the other hand, political and fiscal risks have put additional pressure on government bonds, particularly in Europe and among countries with the most expensive public spending policies. As a result, long-term sovereign yields in several countries reached levels not seen in over fifteen years: the 10-year U.S. Treasury yield stood at 5.28% (+53 basis points over the month), the 10-year French OAT at 4.86% (+68 basis points), and the 10-year German Bund at 3.59% (+27 basis points).

Nevertheless, equity markets showed remarkable resilience (MSCI World: -1.1%, S&P: -0.3%, Stoxx Europe 600: -2.4%). Strong first-half earnings reports and expected earnings growth for 2026 and 2027 (33% and 15% in the U.S., 20% and 9% in Europe, respectively) have so far helped absorb this rate shock.

September also marked a turning point for the AI theme with the launch of Muse, Meta's new personal agent, which illustrates the gradual shift from conversational assistants toward agents capable of performing tasks and becoming a new interface with consumers. After several weeks of underperformance, companies exposed to this theme thus staged a notable recovery, taking into account valuation levels, the interest rate environment, and the cybersecurity incidents that punctuated the month.

Against this backdrop, the fund posted a monthly return of -0.89%, compared to -2.11% for its benchmark index.

The main positive contributor to performance this month was ASML (+10%). In addition to the resurgence of the underlying theme, the company saw its new generation of "High-NA EUV" lithography systems validated by its client TSMC following a period of skepticism regarding its cost. Furthermore, rising demand for production capacity and an improved outlook for the fourth quarter have reignited investor interest.

Strabag (+11%) benefited from raising its medium-term ambitions, with a target of €30 billion in revenue and an EBIT margin of at least 6% by 2030, driven in particular by the expected acceleration of infrastructure investments in Germany

Ariston (+11%) benefited from new signs of recovery in the European heat pump market, particularly in Germany, where sales rose 40% in the first half of the year and where applications for subsidies surged during the summer. The integration of Riello is proceeding as expected, with a target of €25 million in EBITDA synergies by 2030.

Compagnie de Saint-Gobain (-12%) was hurt by the interest rate environment, the return of inflationary pressures, and the continued deterioration of the residential market. The unusual absence of hurricanes in the Atlantic also weighed on the outlook for the U.S. roofing market.

Grenergy (-15%) reported second-quarter results broadly in line with expectations (EBITDA +47% / Net income +112%). A higher-than-expected asset turnover and the continued monetization of its portfolio are enabling the group to finance the acceleration of its investments in energy storage but are automatically reducing the contribution of divested assets to short-term operating results. Large-scale energy storage remains a key driver for the stock, in a market marked by accelerating demand for batteries.

Finally, Allianz (-7.6%) was weighed down by emerging concerns regarding the disruption of the insurance sector by artificial intelligence agents, which could facilitate product comparison and multi- -distribution and, ultimately, intensify price pressures. These concerns arise as the pricing cycle is already beginning to show signs of normalization after several particularly favorable years.

Among the month's key moves, we increased our positions in Prysmian, Enel, Siemens, Merlin Properties, Schneider Electric, Belimo, Halma, SSE, and Ariston. Conversely, we reduced our holdings in Compagnie de Saint-Gobain, ASML, Vaisala, GTT, IMI, NIBE, Seche Environnement, Inwido, and Strabag.

In the short term, the geopolitical environment and its impact on oil prices will continue to fuel market volatility. However, the latest leading indicators (notably the PMI) point to an acceleration in economic activity on both sides of the Atlantic. Third-quarter earnings reports and earnings growth forecasts should therefore remain positive. In this context, earnings momentum will remain a key driver for equity markets despite rising interest rates and costs. Inflation, however, remains the primary concern and could persistently exceed central banks' targets, even in the event of geopolitical de-escalation and a decline in energy prices. Such a development, while easing price pressures in the short term, would also support purchasing power, investment, and, more broadly, already robust demand, thereby sustaining a risk of overheating that could force central banks to tighten monetary policy further. "Higher for longer"…