Enterprise Software Monthly Report | September

26 September 2022

Enterprise Software ETF Monthly Report: Key Takeaways

  • August proved to be a challenging month that halted a strong summer rally. Heading into August, conditions looked very oversold as we went into an earnings period where the mantra was “better than feared,” meaning expectations were so pessimistic that the low bar was cleared. Results for the quarter were overall soft but we didn’t get the massive guide-downs that many analysts anticipated. [1]
  • What we also saw at the onsets of summer was a period where we are lapping comps when it comes to inflation. Recent massive CPI prints had inflation running hot, but we finally got a downtick as of the latest reading. With summer came a risk on tone because lowering inflation will give the fed permission to ease off the hawkish stance of aggressive rate hikes which should finally allow growth equities to rally. [2]
  • However, the tone over Jackson Hole really reversed the rally, sending stocks sharply lower in the following trading sessions. The key line from Powell was when he said “We will keep at it until we are confident the job is done.” We then had NY Fed President Williams adding commentary that he believes in a higher for longer rates path that will be needed to completely tamp out inflation. So the rhetoric over rates and inflation is still very very cloudy, but what it looks like more now, is that we are going to have 75 bps in September then maybe 25 bps at the final two meetings of the year which should settle the fed fund target rate around 3.25-3.50bps. [3]
  • We believe, in the first half of 2023, there is going to be a levelling off of interest rates but we're not going to be cutting any time soon. If you look at the inflationary picture, the fed has done all it can on the demand side to lower demand, but we need to see more improvements on the supply side. Shipping rates remain elevated as we are still in an energy crisis, and we now have major droughts across the world from the Yangtze to the Rhine that are strangling shipping channels. [4]
  • The Bullish narrative into the end of the year is: 1) The Fed does its last outsized hike in September, ending the tightening cycle in December; 2) QT ramps up to maximal caps without increase in volatility or yields; 3) CPI continues to move lower, accelerating the pace of declines; 4) WTI remains at/below $100; 5) Positioning increases as market stabilizes; 6) yields anchor near-term and decrease as rate volatility dissipates post-fed.
 

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

 

Macro Outlook

Although Software is becoming more and more resilient, it is not bulletproof in a recessionary scenario. The number one thing to look out for right now is extending deal cycles. As businesses re-evaluate their budgets, software is usually the last item to get cut, but we are starting to see deal cycles slightly extend (but not cancel) as major purchasing decisions are delayed.

We believe the recent multiple contraction may persist for one or two more months as we gain a clearer picture on inflation and the Fed. However, coming out of the growth sell-off we believe Software stocks are now priced so attractively, it is getting difficult to ignore. Multiples do not need to return anywhere near previous highs in order to form attractive risk/reward profiles, and we believe there are still plenty of buying opportunities ahead. The focus in the near term should be companies that are “growth at a reasonable price” rather than “growth at all costs” which is exactly what this fund is focused on.

Enterprise Software ETF Performance (as of 31.08.2022)

 


1M

3M

6M

YTD

12M

SI

Purpose Enterprise Software ESG-S UCITS ETF (Acc)

-1.13%

-0.57%

-24.86%

-40.33%

-47.94%

-44.51%

Solactive Purpose Enterprise Software ESG Screened Index NTR

-1.07%

-0.43%

-24.72%

-40.16%

-47.69%

-44.20%

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/08/2022. Please note that all performance figures show net data. 

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