Outlook

Impact

Despite the turmoil on the stock markets and the disappointing investment returns in 2016, the fund saw a further increase in the inflow of capital from investors. Triodos SICAV I expects this growth to continue in 2017. In 2017 the fund has the intention to be distributed in Spain. Furthermore, the number of distributors in the countries where Triodos Bank is active has grown and is expected to increase further in 2017.

Triodos SICAV I distinguishes itself from other funds through its responsible shareholder policies and strict investment principles. In 2017, the fund will again review several minimum standards, following up on developments in the field of sustainability, within companies and within society at large. Standards regarding the following issues are scheduled to be reviewed:

Sustainable cotton: cotton is the most commonly grown non-food plant on earth and is used for the production of textiles for clothing, as well as beauty products, home furnishings and insulation material. It is a renewable natural resource, but its production is notorious for its water intensity and high use of pesticides. That is why the fund will investigate the options for defining a requirement for the use of more sustainable cotton for companies that use large amounts of cotton;

Water scarcity: the minimum standards of the fund have covered fresh water scarcity since 2014 and require companies with water-intensive production processes to actively show awareness of the issue through their policies and programmes. Companies have since been stepping up their efforts to reduce water use and preserve fresh water resources. Therefore, in 2017, the fund will investigate whether the requirements can be strengthened.

Market developments and sub-funds

Macro-economic outlook

Economic growth is again expected to fall short of the historical average in 2017. Consumption is unlikely to provide an additional boost, given the advanced stage of the economic cycle. Capital expenditure, however, may pick up slightly as margins recovered in 2016. Furthermore, commodity prices are back on a level where commodity-related companies will start investing again. Politicians appear more willing to switch to fiscal stimulus measures. Central banks will be less active in terms of stimulus measures in 2017. Rising commodity prices and a stronger US dollar will drive up inflation in early 2017. In the US accelerating wage rises will support inflation. This could also happen in the eurozone, because unemployment is starting to approach the level where inflation will accelerate.

Fixed income markets

In Europe the political uncertainty will persist for a considerable time yet. In 2017 elections are due to be held in the Netherlands, Germany and France. All three countries appear to be heading for a sharp political U-turn. Interest rates in Europe are expected to remain low for a considerable period of time and companies will continue to benefit from this in the year ahead. This does not alter the fact that the likelihood of another interest rate rise has increased. Both in the US and in Europe the low interest rate levels and possible fiscal measures provide scope for further economic growth. A further increase in food and energy prices may drive up the inflation expectations further. Base effects in particular may cause inflation in Europe to rise sharply (but perhaps only briefly) in early 2017. The compensation for credit risk is very modest. Triodos Sustainable Bond Fund and Triodos Sustainable Mixed Fund therefore prefer issues with a higher credit rating.

Equity markets

The elections in the Netherlands, France and Germany and the chances for populist parties may have an impact in 2017, because populists often have a reflation agenda, which is positive for cyclical stocks but less favourable for defensive equities. In the US there is uncertainty about Trump’s government policy. A more protectionist course and weaker world trade may have a negative impact. Valuation levels in Europe are more attractive due to structural problems in the eurozone. One such problem is diminishing solidarity, for instance with regard to the problems at Italian banks. 2017 may therefore become another very volatile year for equities. The positioning of Triodos Sustainable Equity Fund, Triodos Sustainable Mixed Fund and Triodos Sustainable Pioneer Fund continues to emphasise Information Technology, Cyclical Consumer Goods and Healthcare, but it must be noted that potential policy changes with respect to the Affordable Care Act (Obamacare) may become a factor to be reckoned with. The attractiveness of companies focusing on energy transition will be determined partly by the policies pursued in this area by Trump.

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