DNCA Invest Sustain Semperosa

"Higher for longer": Rising interest rates have been the defining theme of this economic fall, as inflationary and fiscal concerns have fueled investor jitters. On the one hand, rising energy prices (oil up 35%–40% from July lows), combined with the resilience of 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 -1.39%, 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.

Legrand's Capital Market Day (+3% for the month, +6% following the event) enabled the company to raise its 2030 targets to annual organic growth of 6% to 8% (previously 3%–5%) and an operating margin of 21% to 22% (previously >20%). While electrification and the data center boom remain key drivers, this event also reassured the market about the group's ability to meet the needs of the new direct-current (800V DC) power distribution architecture.

Iberdrola (+3%) benefited from its continued investments in grid infrastructure, as exemplified by the acquisition of Caruna in Finland shortly before Google announced a $15 billion investment in the country's digital infrastructure. Anticipation surrounding the upcoming strategic plan, as well as the expected upward revision of its 2026 targets, also bolstered investor interest.

The building materials sector (CRH: -10% and Heidelberg Materials: -14%) suffered from the interest rate environment, the return of inflationary pressures (transportation/logistics costs), and the continued deterioration of the U.S. residential market (-3%).

Finally, Grenergy (-15%) reported second-quarter results broadly in line with expectations (EBITDA +47% / Net income +112%). Higher-than-expected asset turnover and the ongoing 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 characterized by accelerating demand for batteries.

Among the month's key moves, we increased our positions in Prysmian, Iberdrola, E.ON, SSE, and Grenergy following a period of underperformance and given their continued strong fundamentals. Conversely, we reduced our holdings in Caixabank, KBC, ASML, Kingspan, Rational, and Kion.

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 stay persistently above 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"…