Thursday, 18 October 2018

Impax Environmental Markets - New Purchase

As I was writing my article on climate change recently, I must admit to a feeling of guilt that I did not hold a 'green' fund in my portfolio. I have some reservations regarding this sector and suspect many funds are not really as green as they make out however some are clearly better than others. I think that being aware of a potential problem brings with it a responsibility to do something positive. So, time to make amends.

The transition to a more sustainable global economy is being driven by the pressures on governments and business to respond to climate changes and global warming which was outlined in the recent report from IPCC.

This trust's objective is to help investors benefit from growth in markets for cleaner and more efficient energy, water and waste services. The trust was launched in 2002 and is run by Jon Forster and Bruce Jenkin-Jones who have a long term record of experience and expertise in this market. They see a strong momentum in these areas and wish to appeal both to those who require growth from their investments as well as those who are more concerned about the environmental impact of climate change.

Portfolio Holdings

The trust is global and has around 60 holdings mainly in USA (42%), Europe (35%) and Asia/Japan (20%). The main sector focus is Energy Efficiency (35%), Water (19%), Food/Agriculture (14%) and Renewables (10%). The holdings are in mainly small and mid cap business so this trust's share price is likely to be more volatile. Here is a flavour of some holdings:

EDP Renovaveis based in Portugal is a leading global wind farm operator with over 10GW of capacity spread over 11 countries in Europe and the US, where it is the third largest operator.

Umicore listed in Belgium produces cathode materials for use in rechargeable batteries. Lem is a Swiss company that makes current and voltage transducers. The managers are excited about the potential for the growth in the electric vehicle market over the coming decade. Research suggests the market which currently accounts for around 1% of global sales could reach 40% by 2030.

They hold Norwegian company Tomra Systems which is the main supplier of reverse vending machines used for plastic bottle recycling. Where these schemes are in use, recycling rates increase from around 45% to over 90%.

The global pressure on companies and policymakers to move away from single-use plastic continues to intensify. In May, Chinese President Xi Jinping pledged to push the fight against pollution forward. He signalled a desire to improve environmental quality standards before 2035. In June, India's Prime Minister Narendra Modi indicated that India will remove all single-use plastics by 2022, in the boldest move yet to tackle plastic pollution. Closer to home, the European Commission unveiled new rules on single-use plastics, which will be banned where ready alternatives are available - such as with plastic cotton buds, cutlery, plates, straws and drinks stirrers.

US software company Trimble provides positioning, wireless and software technology for farming and agriculture to improve efficiency and improve yields. Farmers can use GPS and sensors to provide precise nutrients and water levels to crops and monitor the state of their land with greater precision.


The trust has turned in a decent performance over the past 5 years with a total return of  96%. This compares favourably with some of my other holdings - City of London 33%,  Finsbury Gr & Income 75%, Temple Bar 18% and Mid Wynd 99%. Vanguard Lifestrategy 100 has returned 80% over the past 5 years. The return over the past year todate is 7%.
5 year share price chart

The share price reached a high of 290p earlier this year but has recently fallen back by 10% which has provided an opportunity for my initial purchase. Full Year results will be due in March 2019.

From Latest Half-Year Report (pdf)

"We expect equity markets to remain volatile. The recent de-rating of the portfolio, healthy earnings growth, and a diversified positioning provide some comfort on outlook. We continue to encourage investors to remain focussed on the long-term growth story underpinning IEM. The overarching global drive towards more efficient usage of resources and the substantial investments required to establish and maintain infrastructure in environmental markets all remain firmly in place on a global basis. More disruptive developments, for example the transition from internal combustion to electric vehicles or related to the war on plastics waste, drive additional investment opportunities and provide a favourable outlook for growth and performance over the long term".

Environmental impact of £10m investment in IEM plc

Net CO2 emissions avoided 7,940tco2
Equivalent to taking 3,940 cars off the road for a year

Total renewable electricity generated 2,150 MWh
Equivalent to 520 households' electricity

Total water treated, saved, or provided 2,340 megalitres
Equivalent to 18,500 households' water consumption

Total materials recovered/waste treated 1,340 tonnes
Equivalent to 1,340 households' waste arising

So, a start is made which has been financed from the sale of UK income trust Temple Bar. I am also looking at one or two more possibilities to expand this new sector of my portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Feel free to comment below with your views on ethical/green investing. Do you hold any funds? If so which ones and how have they performed for you?

Wednesday, 17 October 2018

Inflation and State Pension Increase

The CPI figures released this week show consumer prices fell in September to 2.4% compared to 2.7% the previous month and 3.0% in September 2017. This months inflation figures are used by the Department for Work and Pensions to set how much pensioners receive from the start of the new tax year in April 2019.
The current triple lock system, which should remain until the next general election, means the State Pension rises by the greater of annual price inflation, as measured by the Consumer Price Index (CPI), earnings growth or a minimum of 2.5%.
Earlier this year I became eligible for my state pension. Earnings growth is currently 2.6% so this should be the figures the DWP use for pensions. I get the new flat rate pension which will increase by £4.30 per week from £164.35 to £168.65 per week (£730 per month). I am not sure whether the state pension increase will cover my actual increased cost of living this year. For example, my council tax was hiked by 6% in April to cover addition 3% spending on social care however my car insurance was actually lower this year by around 5% (renewal with same car & same insurer).
Public sector pensions, such as those paid to teachers, police and NHS staff, will also rise in line with CPI. In addition, the 'lifetime allowance' for private pensions should increase by £24,800 from April 2019. That will mean an individual can have a total pot of £1,054,800 across their private pensions without facing a tax charge.
It will be interesting to see if Mr Hammond makes any further changes to pensions in his budget later this month.
According to the OECD, our state pension equates to ~23% of average earnings. This should increase to nearer 30% as more people retire on the new flat rate pensions which started in April 2016. Currently, most pensioners will be stuck on the 'old' system which is much less generous at £125.95 per week rising to £129.25 from next April apart from those who are topped up with the means tested pension credits.


Most welfare benefits such as Jobseekers allowance are frozen until 2020 so they will not see any increase next year. However PIP (disability) and maternity benefits will increase by the 2.4% from next April.

Interest Rates

The Bank of England base rate has remained at a 300 year low since 2009 for most of the past decade. It was increased to 0.75% in August and my building society passed on some of the increase. I am expecting a further rise to 1.0% in the coming months but probably after the situation on Brexit becomes clearer.

In the US, the Fed have increased their base rate 3 times over the past year from 1.25% to currently 2.25%.

The next financial event will be the Chancellor's budget on 29th October.

Tuesday, 9 October 2018

Climate Change...Be The Change...

The report earlier this week from the IPCC provides yet another reminder of the threats in the not too distant future from the effects of global warming. I have been following this story closely since my interest was alerted in the mid 1980s so for me, and I am sure many others, it is an issue close to my heart.

The Special Report on Global Warming of 1.5ºC was approved by the IPCC on Saturday in Incheon, Republic of Korea. It will be a key scientific input into the Katowice Climate Change Conference in Poland in December, when governments review the Paris Agreement to tackle climate change.
"With more than 6,000 scientific references cited and the dedicated contribution of thousands of expert and government reviewers worldwide, this important report testifies to the breadth and policy relevance of the IPCC," said Hoesung Lee, Chair of the IPCC.

The report is a follow-up to the Paris Agreement of 2015 where the global community agreed on action to limit global warming to a maximum of 2 ºC. This latest report calls for a lower target of 1.5 ºC.

The report says that limiting warming to the lower target will require an industrial transition unprecedented in scale - but that it is possible, if the political will is there - and that the wider opportunities and benefits are huge. It will require large-scale changes from out governments as well as individuals. We will need to invest around $2.4trillion each year - around 2.5% of global GDP for at least the coming two decades.

The report is asking for the global community to agree on 5 major steps:

  1. A reduction in CO2 levels by 45% by 2030
  2. Renewables to provide 85% of global electricity by 2050
  3. Coal to be phased out completely
  4. An area the size of Australia for energy crops
  5. Global net zero emissions by 2050

Basically the report suggests if we fail to achieve these targets we are screwed.


Since the mid 1800s the world has warmed by around 1 ºC and unless there are some drastic changes, we are heading for 1.5 ºC increase by 2050. This may not sound like much but at the end of the last ice age, the UK was covered in around 2,000 ft of glacier and the average temperature was only 6 to 8 degrees cooler than today.

Global climate change has already had observable effects on the environment. Glaciers have shrunk, ice on rivers and lakes is breaking up earlier, plant and animal ranges have shifted and trees are flowering sooner.
Effects that scientists had predicted in the past would result from global climate change are now occurring: loss of sea ice, accelerated sea level rise and longer, more intense heat waves.
Global warming = more extreme weather...droughts, storms, hurricanes, wildfires. Glaciers and polar ice caps will continue to melt which results in a rise in global sea levels which will be a threat to islands and coastal communities.
Severe droughts and/or flooding over large areas will result in a mass migration of people in affected areas which will increase political and economic stability.
In short, global warming and climate change could have far-reaching and long-lasting consequences for millions, possibly billions of people depending on the degree and speed of warming.

What Can We Do?

Of course we have known about the probable effects of climate change for at least 30 years. The IPCC was set up in 1988 by the UN and the World Meteorological Organisation, bringing together the world’s leading climate scientists to assess knowledge of climate change and provide scientific advice to policymakers.

In 2006 the UK government published the Stern Report on Climate Change, led by the former World Bank chief economist Sir Nicholas Stern, showing for the first time that the catastrophic economic impacts of climate change far outstrip the relatively modest costs of reducing emissions.

I first became aware of the problem in the mid 1980s having read 'Seeing Green' by Jonathan Porritt who was then director of Friends of the Earth. I have tried to do my bit over the years and reduce my carbon footprint. Nothing dramatic but changes to lifestyle...basic insulation around the house, cut back on meat, avoid flights/cruises abroad and take holidays in the UK (that's why I do not need a passport), an extra layer of clothing rather than turn up the heating and planting a tree or two. During my stay in Devon we held an annual tree week event and over a period of 6 years collectively planted around 10,000 trees on Dartmoor in conjunction with the Moor Trees Charity. 

We probably do not have much influence on what our government does or does not do, on the phasing out of fossil fuel power stations and the introduction of all the infrastructure to support the switch to electric transport. President Trump may pull out of the Paris Climate Agreement and there's not much we can do to change his mind. However, we can all choose what we eat, how we move around, where we take holidays and weekend breaks and generally how we live our lives. It's easy to think what one person chooses to do or not do will not make any difference but the way we act will influence the people around us and will have a knock-on effect. Small lifestyle changes taken by millions of individuals will have a significant impact on the big picture.

Avoiding meat and dairy products is the single biggest way to reduce your environmental impact on the planet, according to the scientists behind the most comprehensive analysis to date of the damage farming does to the planet.
For starters, a cow on average release between 70 and 120 kg of methane each year. Methane is a greenhouse gas like carbon dioxide (CO2). But the negative effect on the climate of methane is 23 times higher than the effect of CO2. Therefore the release of about 100 kg methane per year for each cow is equivalent to about 2,300 kg CO2 per year.

Secondly land use - without meat and dairy consumption, global farmland use could be reduced by more than 75% – an area equivalent to the US, China, European Union and Australia combined – and still feed the world. For example, beef cattle raised on deforested land result in 12 times more greenhouse gases and use 50 times more land than those grazing rich natural pasture.

Another area of concern highlighted in the report is aviation which is growing at a rapid pace due to 'cheap' flights. It currently accounts for up to 5% of all global warming emissions. Air travel has a much greater impact per passenger mile travelled compared to road or rail. Studies show that high altitude emissions which also include water vapour as well as CO2, nitrous oxides and sooty particulates from the burning of kerosene. Aviation is the fastest growing area of all contributors to global warming. Most air travellers are blissfully unaware of how their flying behaviour contributes to global warming.

Aviation, along with shipping, was given special status and excluded from the Kyoto and Paris climate change agreements. Also, under the Chicago Convention, countries are not permitted to levy fuel duties or VAT on international flights. Not that our political parties are looking to restrict cheap flights!

Hopefully our governments will take these issues more seriously but judging by the progress of the Green Party over recent years I am not holding my breath.
In the absence of governments and business grasping the nettle, it will fall to individuals to instigate some changes.

So, a few suggestions:

  • think about reducing consumption of meat or going veggie
  • look into the option of electric cars or even car share
  • walk or cycle short distances (2 miles or less)
  • think about food miles and choose local produce
  • think about second-hand clothes from charity shops rather than new
  • think about UK holidays to avoid air travel/cruises
  • put on an extra layer of clothing rather than turn up heating
  • look out for opportunities to plant a tree in your community
  • support an environmental organisation

People talk about saving the be honest, the planet really doesn't care whether we 'save' it or not because it will carry on regardless. What matters is whether we can continue with a relatively benign environment much as we have become used to over the past 10,000 years, or whether we stubbornly stick out collective heads in the sand and create a very hostile planet for out children and grandchildren.

Mahatma Gandhi famously said, "You must be the change you want to see in the world." In other words, although life changes are inevitable, we can also initiate personal change so we can rise to the challenges that we all face. It is empowering and means we take some responsibility for the changes we want to see happen without relying on other people to make the changes. It's about bringing your beliefs and lifestyle into closer alignment.

Our politicians spend much of their time sqabbling over Brexit but our climate scientists remind us all that the existential threat of the hour is global warming. The window to make the changes required becomes smaller with each passing year.

Further Research

Are you worried by climate change? What do you think our government needs to do now? What changes have you made (or intend to make) in your personal lifestyle to reduce your carbon footprint? Maybe you think the scientists have got it wrong and it's all unnecessary scaremongering? Leave a comment below.

Thursday, 27 September 2018

Woodford Patient Capital - New Purchase

I am making a little more progress with the transition of my portfolio from income to growth. Today, I have added Woodford Patient Capital trust to my portfolio as a replacement for City Merchants High Yield trust.

WPCT provides financing for early-stage businesses that seek to turn innovative new products into a commercial success. It is a unique investment trust that, as the name suggests, requires a long-term outlook.

The trust raised £800m when launched in April 2015 however it has been a bit of a rollercoaster ride for investors. There have been some significant setbacks within the portfolio to date, notably investments in Allied Minds, Circassia and Northwest Biotherapeutics. Overcoming setbacks is part and parcel of investing in early stage companies and any portfolio, whether investing in large or higher-risk smaller companies, will have winners and losers.

The bulk of the trust remains invested in ‘early-stage’ and ‘early-growth’ companies many of which are not listed on a stock market. These tend to be highly innovative companies developing new products and services that have the potential to change entire industries, many of which feature in the healthcare sector. Obviously not all of them will succeed.

However, Neil Woodford is reported as saying, in the teeth of such disappointments, that the trust has stakes in several companies that could be worth billions of dollars each in the next five years. On the basis of that potential, and assuming that the trust sticks with its original investments without taking any more punts on jam-tomorrow stocks, I think the lower share price currently makes it more attractive.
(click to enlarge)

Last week the shares received a boost from a reassessment of the value of cold fusion specialist Industrial Heat. Woodford says it funded this company 'to engage credible world-leading institutions rigorously to assess the claims of research groups in the field'. Growing interest in the business has enabled it to raise money from other investors prompting a substantial increase in its value.
Industrial Heat is now worth US$112.9mln according to Woodford's alternative fund manager Link, or a 357% rise compared to its previous valuation. That translated into an 8p uplift in the net asset value of Woodford Patient Capital Trust.
Earlier this year the trust received a valuation boost from the US stock market flotation of Autolus Therapeutics, which is currently its largest holding.
The value of its stake in Autolus jumped by 51% as a result of the IPO (initial public offering) being priced at a higher level than the current book value of its investment. In turn, that provides 3.8% uplift to the net asset value of WPCT.
This is the type of outcome which vindicates Woodford’s approach of finding businesses with ‘outstanding intellectual property’, helping them grow with financial support, and then reaping the rewards with exceptional long-term returns.
Top Holdings
The Company is invested in five companies that are valued at more than $1 bn Autolus, Purplebricks, Oxford Nanopore, Benevolent AI and Immunocore. Some of the largest holdings are related to healthcare.
The largest is Autolus which listed on Nasdaq in June and accounts for 11% of the portfolio. It has developed a therapy which extracts white blood cells, modifies them to target cancer and reinjects them. Its related therapies are currently going through stage one and two trials, but similar methods have already passed phase three trials in competitor companies, which gives Neil a high degree of confidence the treatments will be validated. The trust is retaining its holding despite the gains on flotation, hoping there is much more is to come from the stock.
Benevolent AI, a 9.5% position, uses artificial intelligence techniques to generate ideas for treatments for disease. The technology finds associations and similarities across research papers, potentially generating ideas for new drugs which human researchers might lack the perspective to find. It is also developing further uses for its technology outside of healthcare. Earlier this year the company raised $115m from new investors which valued the company at £2bn.
Oxford Nanopore, 8% of the trust, produces handheld gene sequencers. Its main customers at the moment are in the University, but it is keen to develop new markets and uses for its tech. It is not the only player in the field, but it does have advantages over its largest rival Illumina, both in the handheld nature of its product and in the more efficient way it builds a genome up from larger building blocks.


The trust also does not levy an annual management fee. However they will levy a hefty 15% performance fee when the trust can deliver on its promise of 10% annual NAV return. Woodford Investment Management has not yet taken any performance fees from the trust, and has some way to go before it does. The management’s incentives are therefore well aligned with the interests of shareholders.

The trust has around 90 holdings - split two-thirds unlisted and one-third listed. It recently reported half-year results to end June 2018 (link via Investegate)

At the time of this post, the net assets of the trust are estimated close to 100p however the share price lags behind at 85p which gives me a discount of 15% .

The purchase is speculative and no more than a punt on the talent and judgment of Neil Woodford to deliver the goods he has set out to achieve. The initial purchase is quite modest and represents less than 2% of my portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!