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.

Analyst's 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

13 Mar 2024 Roller coaster ride
Thematic funds have seen significant outflows over the past two years…
14 Feb 2024 Rise of the Machines
We look at some potentially exciting technology themes outside of the AI realm and share ways for investors to gain exposure without the hefty price tag…
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
IEM’s underlying drivers have been reinforced, yet its premium valuation has crumbled, offering a compelling opportunity...
30 Mar 2022 You say tomato…
Do it yourself or put it into a global fund and leave it to the experts - our analyst debate the merits of each approach...
08 Mar 2022 Fund Analysis
IEM’s very high premium has eroded, offering a potentially attractive entry point for long term investors…
24 Nov 2021 Holding back the tears
While the final text of COP26 fell short of what many had hoped for, the writing is on the wall for fossil fuels and, from an investment perspective, the age of sustainability has only just begun…
27 Oct 2021 Gone with the wind
One of our analysts looks at the implications of the shocking rise in energy prices and the opportunities it highlights for investment trusts...
26 Oct 2021 Fund Analysis
Momentum behind IEM’s performance appears strong, but this is reflected in the premium rating...
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
01 Apr 2021 Fund Analysis
IEM’s valuation-led approach to growth investing has delivered strong returns through cycles...
24 Feb 2021 Dire Straits or Money for Nothing?
As discounts reach historically narrow levels across the board – our analysts debate whether a premium is a price worth paying…
04 Feb 2021 Eurovision 2021
We highlight potential opportunities within the European investment trust space…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
16 Dec 2020 My haven’t you grown!
How sustainability has gone from zero to hero in 2020…
02 Dec 2020 Fund Analysis
2020 has been IEM’s year, and the future looks bright too…
15 Oct 2020 Nice guys finish first
ESG has moved from hippy pipe-dream to corporate mainstream, but what is it really and where do we see opportunities?
26 Aug 2020 Trump v. Biden
Two of our analysts debate who will win the US election and what that means for markets…
20 Aug 2020 Weathering the storm: Impax Environmental Markets
Reporting results for the six months ending June 2020, IEM has continued to attract new investors even during the Coronavirus crisis and could soon face capacity constraints…
22 Jul 2020 A game of four quarters
Seven trusts, two quarters. Are our team still happy with their trust picks for 2020?
09 Jul 2020 The next big thing: two mega-trends that everyone should own
Tech seems to beat every other sector hands down – in both up and down markets – but nothing lasts forever. Where else should investors be looking for secular growth themes?
01 Jul 2020 Fund Analysis
Strong demand for IEM’s unique offering, means it continues to issue shares and grow...
25 Mar 2020 Of mice and men
Our ‘best laid plans’ have somewhat ‘gang aglay’ since the KTI team put forward its best ideas for 2020 in early January…
02 Jan 2020 Crystal Balls
Drunk on our success in choosing funds to perform well in 2019, the team at Kepler Trust Intelligence is back at the table with a glint in its eye…
26 Nov 2019 The new frontiers in environmental markets
Impax Environmental Markets has a long track record of addressing environmental challenges - giving it a first mover advantage when it comes to new sustainable issues...
19 Sep 2019 Fund Analysis
IEM invests in companies which are helping the transition from depletive models to sustainable ones…
19 Sep 2019 Rebels no more...
Climate change and sustainability is now mainstream - so we are adding ESG analysis into all of our fund research…
03 Apr 2019 Nice guys finish first
We review the rise of ESG, its impact on investment trusts, and the various ways ESG has evolved in the trust world...
03 Apr 2019 ESG: Impact
26 Mar 2019 Fund Analysis
With global populations rising, IEM invests in companies that help humanity achieve more with less...
19 Mar 2019 Electric Dreams: The future of energy
At our first public event, three fund managers gave their insights on the future of energy and the investment opportunities in this space...
27 Feb 2019 A marathon not a sprint
Our research shows that investment trusts' structural advantages give them a significant edge for investors seeking long-term capital growth...
24 Dec 2018 Why did the chicken cross the road?
Because he was so bored of reading newspapers devoted entirely to Brexit he was hoping he’d be hit by a truck.
04 Dec 2018 Fund Analysis
Long term thinking...
04 Apr 2018 Electric dreams
We examine the growing shift toward electrical power across a broad range of industries, and the implications for investment trusts with exposure to them...
04 Apr 2018 Fund Analysis
A highly-differentiated global equity trust that benefits from the increasing focus on resource efficiency and tighter environmental regulations around the world...
05 Oct 2017 Winners and losers from tomorrow’s world
We highlight a subsection of managers and strategies which aim to identify and profit from innovative disruption in the global economy...
05 Oct 2017 Fund Analysis
A small-mid cap global equities trust positioned for the transition toward a low energy, cleaner and more efficient global economy..
17 May 2016 Why oil may never recover..
Those who believe today’s resurgent oil price is an opportunity should bear in mind that Britain was powered, this month, without burning a single chunk of coal for the first time since 1882.
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