Morningstar - Q1 2023 - 23

their high nuclear ambitions in coming
decades, " says Tancrede Fulop, senior equity
analyst at Morningstar.
TRENDS
Liquid Alternatives Came Through in 2022
Engie ENGI:FR, the other big French utility, owns
and operates six nuclear reactors in Belgium
previously scheduled to close at the end of 2025.
" The Belgian government recently decided
to extend the useful life of two of those reactors,
Doel 4 and Tihange 3, by 10 years, " Fulop says.
" This could boost Engie's earnings but will
have a limited valuation impact, as we believe
incremental cash flows will be offset by
additional investments needed to extend the
useful life of the plants. "
The German government decided to postpone
the closure of the last three nuclear plants
from year-end 2022 to April 2023 to alleviate
tension on the grid this winter. " This could slightly
boost the short-term earnings of the three
plants' operators: RWE RWE:DE, E.On EOAN:DE,
and EnBW Energie Baden-Wuerttemberg
EEGBF:DE, " Fulop says.
France, Europe's leading country in terms of
nuclear energy production, is likely to be
the market that will benefit the most from this EU
decision. President Emmanuel Macron plans
to modernize the 58 reactors already in place. He
has also announced his intention to build
at least six new ones, with the possibility of
increasing the number to 14.
The U.K. is preparing to finance seven new power
stations by 2050. London has made the
development of nuclear power one of the priorities
of its energy strategy. Many of its 15 reactors
are at the end of their lifecycle, and the only
plant currently under construction, Hinkley Point C,
a project led by EDF and China's CGN Mining
CGNMF:CH, has seen its costs rise and will not
open until 2027.
" Europe is not the only region betting on nuclear
power, " says Yun Bai, Vontobel's head of
factor investing research. " At the 2021 UN Climate
Change Conference (COP26), China, the world
leader in solar, wind and hydropower, announced
the construction of 150 new reactors by 2035.
This is a huge investment of around $440 billion,
For investors looking for shelter from
2022's bear market in stocks, bond funds
did not provide a safe haven. But alternative
funds did. Alternative funds are meant
to provide diversification, mainly playing
defense in a portfolio by having returns that
show little correlation to either stocks
or bonds. To accomplish this, alternative funds
use a wide variety of sometimes
complex strategies.
3%
2
2.0
1.8
1
0.8
Alternative funds have a reputation of
overpromising and underdelivering. Meanwhile,
fund investors have a track record of moving
money into alternative strategies after
markets have already broken down, missing
some of the benefits of diversification. But
most of those investors who held alternative
funds coming into 2022 benefited: The
average alternatives fund had lost only 1.3%
through Dec. 20, while the Morningstar
US Market Index was down 19.8%
and the Morningstar US Core Bond Index
was down 12.2%.
2022
2023
8%
6
4
2
Most Alternative Categories Beat the Stock and Bond Markets in 2022
2022
Morningstar Category
Digital Assets
Equity Market Neutral
Event Driven
Macro Trading
Multistrategy
Options Trading
Relative Value Arbitrage
Systematic Trend
Morningstar US Market Index
Morningstar US Core Bond Index
-80%
Source: Morningstar Direct. Data as of Dec. 20, 2022.
Year-to-Date Return
60
40
2023
2024
-66.30
5.54
-2.12
-0.23
-2.34
-9.38
-3.86
14.90
-19.84
-12.20
20
20
6.2
6.3
2.9
2.2
1.6
0.4
While alternative strategies have fared well
overall, posting relatively modest losses
or gains, the dispersion in strategies has been
wide. Systematic trend funds were up a
healthy 14.9% on average. " As many of the
slow-moving trends from 2021 picked up steam
in 2022, these strategies have taken off, "
says Kephart. Among the clear trends that
many funds were able to profit from in
2022, the U.S. dollar posted a strong rise, and
energy and commodity prices skyrocketed.
However, the average digital assets fund-
which provides exposure to cryptocurrencies-
was down 66.3%.
1.4
2024
Katherine Lynch is a data journalist at Morningstar.
3.4
" It's been a golden age for alternatives this
year, " says Morningstar director of multi-asset
ratings Jason Kephart. " They've done well
because they have very little interest-rate
risk, a factor that has been painful for both stocks
and bonds this year. "
2.5
Morningstar
Consensus
Morningstar
Consensus
23
https://www.morningstar.com/stocks/xpar/engi/quote https://www.morningstar.com/stocks/xetr/eoan/quote https://www.morningstar.com/stocks/xetr/rwe/quote https://www.morningstar.com/authors/2337/katherine-lynch https://www.morningstar.com/stocks/pinx/cgnmf/quote https://www.morningstar.com/stocks/pinx/cgnmf/quote
Morningstar - Q1 2023

Table of Contents for the Digital Edition of Morningstar - Q1 2023
