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magazineHow investors can clean up with Impax Environmental Markets
Inflation and rising interest rates have created a tougher backdrop for higher growth companies including those operating in environmental markets, yet the investment case for businesses trying to make the world a better, cleaner place is only strengthening.
Drivers include the policy push towards net-zero emissions and actions to address energy security issues. One way to gain exposure to the ESG theme is Impax Environmental Markets (IEM), the investment trust managed by Impax Asset Management.
Having historically traded at a premium to the value of its assets, a rare 4.3% share price discount presents an attractive entry point in a fund that has delivered 10-year compound annual returns of 12.7% and levies competitive fees of 0.81%.
Impax Environmental Markets seeks to generate long-term capital growth by investing in global small and mid-cap companies providing solutions to the world’s environmental problems, particularly clean energy and energy efficiency, water treatment and pollution control, waste technology and resource management, including sustainable food, agriculture and forestry.
Managers Bruce Jenkyn-Jones, Jon Forster and Fotis Chatzimichalakis believe that companies offering solutions to sustainability challenges will tend to outperform the wider market over the long term.
High fossil fuel prices and concerns about energy security, allied with efforts to mitigate and adapt to climate change, support the economics of energy efficiency investments and reinforce the case for the transition away from hydrocarbons and towards renewables.
‘In the past 12 months, we have had very strong regulatory support for our end markets,’ says Chatzimichalakis, citing policies such as the US Inflation Reduction Act including hundreds of billions of dollars in green technology subsidies. ‘We are investing in proven and profitable businesses, not companies that overly rely on policy, but nevertheless policy is a driver for the end markets we invest in.’
While performance in 2022 was disappointing, with Impax Environmental Markets seeing a 15% decline in net asset value total return per share, portfolio valuations have been reset and takeover activity in environmental markets has picked up, which may help boost performance going forwards.
Investec recently noted the managers have been rotating towards cyclical and growth companies with strong balance sheets, where valuations have been beaten down.
Top 10 holdings span the likes of digital technology group PTC (PTC:NASDAQ), hazardous waste disposal leader Clean Harbors (CLH:NYSE) and renewable energy project developer Northland Power (NPI:TSE). It also invests in logistics business Brambles (BXB:ASX) and Darling Ingredients (DAR:NYSE), which turns edible by-products and food waste into sustainable products and also produces renewable energy.
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