Fund Profile

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 very high premium has eroded, offering a potentially attractive entry point for long term investors…
Overview

Impax Environmental Markets (IEM) is a specialist trust with a focus on mid and small-cap growth companies in the new energy, clean and efficient transport, sustainable food, water, circular economy, and smart environment sectors. Long-term, IEM’s managers hope to outperform wider equity markets through their stock picking, allied to the ability for smaller and mid cap companies to compound growth faster than larger ones. Impax’s edge is their specialist knowledge of companies exposed to secular growth themes.

Historically, company fundamentals including strong earnings growth ahead of wider markets, have driven excess returns. However, the period since the start of the pandemic has led to robust NAV returns from the portfolio. IEM’s NAV total return since the start of the pandemic has been 32.9%, against 20% for MSCI ACWI. Over a longer time frame of five years, Performance is no less impressive, with IEM sitting third in the AIC Global peer group.

IEM’s managers have a strong valuation element to their investment process and a focus on fundamentals. This means that significant changes to the portfolio are rare and that some holdings will be a feature for many years. Manager Jon Forster comments that on an underlying basis, IEM’s portfolio companies have so far continued to hit earnings guidance. Indeed, in Q4, the Portfolio performed better than the market was expecting.

IEM has achieved its returns with higher risk characteristics. We attribute IEM’s higher volatility with the fact that this is a mid and small-cap portfolio, but it is also significantly exposed to cyclical sectors such as industrials. The managers seek to mitigate risks by maintaining a diversified portfolio. Statistically, the extra risks taken by the manager over five years have been rewarded with a significantly higher return.

Analyst's View

IEM’s managers have a depth and breadth of experience second to none in this specialist space. One of the defining characteristics of the IEM strategy is its focus on innovative small and mid-cap businesses. These are companies that are not usually on the radar of generalist investors, and with the secular growth trends they are exposed to, IEM’s Portfolio is distinctly different to other global funds.

The exposure to these mid and small-cap companies necessarily means that the strategy is capacity constrained. That the manager has been assiduous in protecting itself and clients from the significantly increased demand for Impax’s funds is encouraging evidence of a management group looking to benefit from a successful relationship with its clients/investors over the long term.

For quite some time, IEM has been trading at a significant premium to NAV. Far from not being justified, this is merely representative of IEM’s rarity, offset with the board’s inability to issue shares given the manager’s limited capacity. As we warned at the time, as alluring as the investment themes behind IEM might seem, investors should always be wary of such a premium to NAV. Recent market moves have meant IEM’s premium has eroded, and we see it as reassuring that the board recently bought some shares back at a c. 6% discount to NAV. Currently trading at a 1% premium to NAV, we see this as a potentially interesting entry point.

Bull

  • Niche investment strategy which has delivered strong outperformance over the long term
  • Strong historic underlying earnings growth provides evidence of manager’s stock picking skills
  • Specialist, well-resourced manager

Bear

  • Portfolio continues to trade on a higher premium to wider markets than historically
  • Exposure to industrials and cyclicals could leave IEM vulnerable to an economic slowdown
  • Trading on a small premium to NAV
Continue to Portfolio

Fund History

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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