Tell me a bit about the fund Everyone is going green — or thinking about it. Following Japan’s Fukushima disaster, climate change, Hurricane Katrina, rising gas prices, closure of coal power plants and the BP oil spill in the Gulf of Mexico, there is an urgent need to become more green and that’s now playing out in the investment world not just in real life. So how does one invest green or in a socially responsible way? Green investments are investments in which the underlying business is somehow involved in operations aimed at improving the environment. This can range from companies that are developing alternative energy technology to companies that have the best environmental practices. But it’s all a bit of a grey area because everyone has their own beliefs on what constitutes a green investment. The real problem with green investments The Impax Environmental Leaders Fund is a long-only, all-cap global equity fund that invests in resources efficiency and environmental markets. It seeks to achieve sustainable, above market returns over the longer term by investing globally in these two markets. These markets address a number of long term macro-economic themes: growing populations, rising living standards, increasing urbanisation, rising consumption, and depletion of limited natural resources. Investments are made in companies which have >20% of their underlying revenue generated by sales of environmental products or services in the energy efficiency, renewable energy, water, waste and sustainable food and agriculture markets.

The Investment Process
The company’s investment philosophy is to invest in companies that operate in markets where there are long term themes that underpin growth and where those companies are poorly understood and, therefore, inefficiently priced to provide opportunities for a specialist active manager to add value. Impax’s listed equity funds seek out mispriced companies that are set to benefit from the long-term trends of rising global populations and wealth, changing demographics, urbanisation, increasing consumption, and the resultant increases in resource demand. Investment is focused on a small number of deeply researched global equity strategies across energy efficiency, renewable energy, water, waste/resource recovery, food and agriculture related markets. Companies in these markets are generally characterised by high levels of corporate activity, low levels of sell-side coverage, rapid technological innovation and regulatory momentum. Impax looks to exploit mispricing in certain sectors because they are complex to understand and challenging to navigate.

Here are a few dot points about the fund:

  • Long only global equity fund
  • Investment style is Bottom up GARP + top down
  • It looks at a 1500 company universe
  • The fund drills down and holds only 40-60 stocks
  • AUM = $2.5bn
  • Return objective is 2.5% over the MSCI ACWI
  • Turnover date 30-50%
  • Launch date March 2008
  • Performance YTD 12.4% in 2016
  • Performance YTD 1.3% in 2016

Top ten shareholdings

  1. SUEZ – France – Water Utilities
  2. Siemens – Diversified Energy Efficiency – Germany
  3. Delphi Automotive – Transport Energy Efficiency – US
  4. Ecolab – Water Treatment Equipment – US
  5. Danaher Corp – Diversified Water Infrastructure & Tech – US
  6. East Japan Railway Company – Public Transport – Japan
  7. Thermo Fisher Scientific – Environmental Testing & Gas Sensing – US
  8. Sealed Air Corp – Logistics, Food Safety & Packaging – US
  9. Xylem – Water Infrastructure – US
  10. Ingersoll-Rand – Buldings Energy Efficiency – US

Unconventional View – Whilst there are quite a few ethical funds that claim to be socially responsible, it’s hard to value how green they really are. Some are stacked with renewable energy and others are filled with companies that uphold best practice in the environmental space. This fund seems to be one that is stacked with renewable energy and water infrastructure. Green investing in its purest form means that most companies in the ASX 100 wouldn’t make it into a portfolio not even the banks. Many of you that are attracted to “green” investments by the promise of good returns attached with the care for the environment need to be weary. There are risks. In the past energy investments have been known to perform quite poorly and low returns. Energy investments can be hard to sell because they involve funding projects that can last several years. Also keep in mind as oil gets cheaper, it becomes harder for green energy to compete. But as time has gone, ethical funds are becoming more and more popular especiallywith ethically minded investors and returns are getting better. Just today Blackrock came out and said coal is dead as it eyes renewable power splurge. Fund managers are beginning to realise that to attract investors they must prove that their fund can help save the world without sacrificing returns. For that reason, this fund isn’t for everyone, it does carry a certain level of risk but those that are looking for green exposure, this fund gives that exposure.