The investment trust that refuses to believe in the end of the world
The world’s problems can be solved – and the Impax Environmental Markets investment trust is well placed to profit from fixing them.
The world's problems can be solved and theImpax Environmental Marketsinvestment trust is well placed to profit from fixing them.
There is a natural assumption that tackling environmental problems carries, at best, the economic cost of higher prices, lower living standards, lower profits and lower investment returns; at worst, that the world is heading for an environmental Armageddon. However, Bruce Jenkyn-Jones and Ian Simm, who founded Impax Asset Management in 1998, are more optimistic, believing that not only are the problems soluble, but that the solutions also provide opportunities for investors.
Funds under management have grown to £11bn, and their performance makes the point. Total returns of their flagship investment trust Impax Environmental Markets (LSE: IEM), with £530m of assets, have been 56% over three years and 94% over five, comfortably ahead of the 43% and 74% returns of the MSCI World index. "The opportunity set has never been more attractive, with 1,500 listed companies growing in our space, giving us a very wide landscape to choose from," says Simm.
The portfolio holds just 60 of these, the largest accounting for under 3% of the total. There is a bias away from the mega-caps that dominate the global index, but with an average market capitalisation of $6bn and only 18% of the portfolio invested in companies below $2bn, most are still sizeable. Geographic exposure is 43% North America, 35% Europe (including UK), 3% Japan and 17% Asia ex-Japan, showing a tilt to Europe and Asia at the expense of North America and Japan compared with global indices.
At the thematic level, 36% of the portfolio is invested in "energy efficiency", and just 9% in renewable and alternative energy. This recognises that restraining demand is as much the key to reducing fossil-fuel consumption as shifting to carbon-free production. The latter grabs the popular attention, but the former saves customers money. Besides, "renewable energy has been a difficult place to invest due to competition and over-investment driving down prices", says Jenkyn-Jones.
The same practical approach can be seen in the waste (9%), food, agriculture & forestry (14%), pollution control (9%) and water infrastructure & technologies (19%) sections of the portfolio. "We are not structured around let's save the world', but around targeting growth markets that provide solutions to environmental problems," he says. "We look for firms with their feet on the ground, high returns on capital and trading at the right price." Supportive regulation underpins the growth, but Impax is wary of firms propped up by subsidies. "These create a boom-bust market; we want firms that can stand on their own feet, are economically [and] environmentally sustainable [and] whose customers are volunteers rather than conscripts."
A diverse portfolio
Portfolio turnover is moderate, much of it from top-slicing larger holdings. Top of the list is EDP Renovveis, the Portuguese wind-farm company with operations all over Europe and the US. Also high on the list is Tomra, the world's leading maker of reverse vending machines with a market share of 80%. These are bought by supermarkets and garages to enable customers to claim the deposits on items such as bottles and cans. Jenkyn-Jones also highlights Eurofins Scientific, which tests food, pharmaceuticals and consumer products for safety, quality, composition and origin of products, and Trimble, which provides navigational software for agricultural use, enabling farmers to automate vehicles.
Impax is optimistic note about the future. "There are economic solutions to environmental problems from which investors as well as society can benefit." The end of the world is not nigh.