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.

Performance

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?

2 comments:

  1. I appreciate your drawing this trust to my attention.
    After some study, I've followed you in with an investment.
    I sold my holdings in BATS (a declining winner) and City Natural Resources (a consistent loser) to fund the purchase.
    I feel better for that...

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    Replies
    1. Well done steveal! I hope it can continue to deliver reasonable returns for us new investors.

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