Fund Profile

Impax Environmental Markets 08 December 2023

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Impax Environmental Markets. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
IEM’s portfolio is cheap, and its shares trade on a wide discount…
Overview

Impax Environmental Markets (IEM) owns a Portfolio of mostly small- and medium-sized companies that are set to capture the growth opportunities on offer from a growing array of industries delivering innovative solutions to social and environmental challenges. The trust continues to be managed by the long-serving three-strong team of Jon Forster, Bruce Jenkyn-Jones, and Fotis Chatzimichalakis. They focus on six broad areas to help identify potential holdings which are typically held for the long term.

The portfolio, relative to the broader global markets, has been impacted this year by what the managers believe are a number of temporary macro factors. However, the managers also believe this has now taken valuations to attractive levels, with all the premium coming out of the market and no value being ascribed to future tailwinds from expanded government policy and consumer demand (see Performance).

In order to capture this opportunity, the managers have increased their utilisation of Gearing to its highest level in over five years. This has been done with the support of new facilities across a blend of fixed and floating rates and a mix of maturities.

Despite the managers’ optimistic outlook, the shares have slipped to an attractive Discount. The shares had traded at a double-digit premium as recently as 2022, but are now generally trading between a 7 and 8% discount, more than two standard deviations wider than the five-year average. We note that the board have been very active with share buybacks.

Kepler View

We believe IEM is a unique proposition in the investment trust space. It offers investors access to an exciting Portfolio of innovative and growing companies that are well-placed to capture the growing demand for products and services that will meet the environmental challenges the world is facing. Whilst there are many vehicles which include this area of structural demand as an investment theme, we think the fact that it is IEM’s sole focus and that this is expressed in small and medium-sized businesses means it is a better, and purer play for long-term investors.

The fact investors are able to access this portfolio at a significant Discount to NAV at present makes this a potentially very attractive entry point in our opinion. The board has been very active in trying to protect the discount from widening yet further through significant buybacks, and even the managers have been investing their own capital which we believe should be seen as an encouraging sign. Further to this, the value of the portfolio itself is also arguably depressed, with all of the hype having come out of valuations, and nothing ascribed to the significant increase in political, regulatory or consumer support evidenced in the past few years continuing (see Performance).

The managers have shown their belief in these valuations by increasing their Gearing. If their optimism pays off, we believe this could notably boost any bounce back in the sector which could lead to another period of significant outperformance.

Bull

  • Valuations have come down significantly
  • Trust is trading at a wide discount which the board are trying to reverse with significant resources
  • Highly differentiated portfolio to global sector

Bear

  • Increased level of gearing can amplify downside as well as upside
  • Small and medium-sized companies can be more volatile, and more exposed to the economic cycle
  • Structural underweights to value sectors can pose a headwind to relative performance at times
Continue to Portfolio

Fund History

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08 Dec 2023 Fund Analysis
IEM’s portfolio is cheap, and its shares trade on a wide discount…
12 Apr 2023 Fund Analysis
The drivers for IEM’s portfolio have been reinforced by changing government, business and consumer support…
30 Mar 2023 What I’m doing with my allowance this tax year
Two of our analysts debate whether to invest in punchier funds for the long term or take a more cautious view…
29 Sep 2022 Fund Analysis
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20 Aug 2020 Weathering the storm: Impax Environmental Markets
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25 Mar 2020 Of mice and men
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19 Sep 2019 Fund Analysis
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