Jupiter Green (JGC) has had a well-timed shift of its investment focus, targeting smaller and more innovative companies (Portfolio). The new lead manager, Jon Wallace, has been working on the trust since 2014, which has ensured a smooth transition. The change in emphasis on the size and growth prospects of the underlying companies has already brought results in terms of strong absolute performance since September 2020, and (as discussed in Discount) a premium rating has been established, allowing JGC to issue shares and start to grow.
Since the change in strategy was adopted, share prices for many companies in Jon’s stock universe have moved higher. The team’s long expertise and experience in the sector, not to mention the ability to be nimble given the size of the trust, has led them to try to find less expensive ideas ‘off the beaten path’.
With many of these ideas, JGC can take advantage of its relatively small size (net assets of £54m) to invest in companies below the radar of most investors. When compared to other trusts offering exposure to sustainable themes, JGC has a significantly higher exposure to small and micro-cap companies (as defined by Morningstar), with a current median market cap of just over £4bn. The managers anticipate taking advantage of JGC’s permission to invest up to 5% in unlisted companies, further differentiating the trust from peers.
Jon is enthusiastic on the long-term secular tailwinds behind the strategy. COP26 in Glasgow will be a big focal point for governments and regulators around the world, and the UK’s recent announcement of increased environmental commitment may see the rest of the world continue to raise theirs.
JGC invests across seven sustainable themes, including the circular economy, clean energy, water and sustainable agriculture, nutrition and health. Demand has been strong for funds and trusts exposed to these themes, but Jon and his team at Jupiter have long experience in the space which they believe will enable them to invest profitably in areas of the market with strong growth potential.
The investment focus moving towards smaller, more innovative companies provides a clear differentiator to many other sustainably themed funds. As we highlight in management, the team believe that the size of the trust allows them to invest nimbly, which allows them to consider significantly smaller companies than peers.
In terms of Performance, it is early days yet. Despite a strong Q4 in 2020, JGC has not been immune to the rotation into value stocks experienced by the broader market. That said, Jon believes many of his companies have proved more resilient than one might have expected.
JGC has traded on an average discount of c. 5% over the past five years, but latterly this has been superseded by a premium rating to NAV. Subsequent share issuance has thus allowed the trust to grow, reflective in our view of the differentiated investment that JGC now represents. In our view, it will appeal to all sorts of investors, providing an exposure to more dynamic, innovative and high-growth companies driving the transformation of the global economy to a more sustainable footing.
|Differentiated investment proposition, makes JGC unique amongst funds and trusts offering a sustainable theme
||Smaller and more innovative companies tend to be higher-risk propositions than ‘established leaders’
|Long track record and experience of management team
||Gearing will exacerbate the downside (as well as enhance the upside)
|Share issuance means liquidity and OCF should continue to improve
||Premium could give way to a discount