Impax Environmental Markets 29 September 2022
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.
To enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste.
Impax Environmental Markets
Impax Asset Management
Bruce Jenkyn-Jones; Jon Forster; Fotis Chatzimichalakis;
Association of Investment Companies (AIC) Sector
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
IEM offers exposure to a diverse range of environmental themes from renewable energy to water treatment via a relatively concentrated portfolio of small and medium-sized listed companies. Impax is a pioneering manager in this space and the three co-managers of this trust are highly experienced. They use their specialist knowledge to identify companies that can benefit from what they see as structural growth drivers.
The trust had performed exceptionally well in recent years but the NAV has, more recently, pulled back as market leadership has switched from the growth-style companies in which the trust invests, to more value-orientated ones (see Performance). The managers have used this period to rotate out of certain areas which have performed well, into areas that have good prospects but which aren’t being reflected in valuations. This is discussed in Portfolio.
In the past year, IEM has slipped back from a premium valuation in two ways. Firstly, the underlying portfolio companies themselves have moved back in line with broader markets. Secondly, the trust itself has moved from a sizeable premium to a small discount on occasion.
This period of better relative value has coincided with a potential strengthening in the long-term prospects for many underlying businesses. The current heightened geopolitical and macro issues hitting the headlines today are supportive for many of the longer-term themes in the portfolio, namely energy efficiency and renewable energy.
IEM offers long-term exposure to secular growth themes around environmental solutions, themes that are at the top of the agenda for many governments, businesses and consumers alike. The managers are highly experienced in this space, which, in our view, adds to the credibility of the trust given the uncertain economic outlook. Many growth investors have moved into this space in the past couple of years as it has become increasingly en vogue but IEM’s managers, with near unrivalled depth and breadth of knowledge, should give investors the reassurance that they have seen throughout many cycles before.
Most importantly, in our view, the manager’s valuation-led approach to growth investing offers a differentiated exposure. The team’s activity year to date (see Portfolio) illustrates how the team try to stay ahead of the pack. Longer-term, we see many of the themes IEM is exposed to as those that really have the capability to deliver.
Historically, IEM’s shares have traded on a premium and the underlying companies have been expensive versus the market due to this increased popularity. However, this has unwound this year (see Discount). The trust has even moved to a discount on occasion, offering a potentially rare value opportunity.
- Trust offers long-term growth exposure with specialist management
- Base case for underlying drivers of the portfolio has been reinforced
- Premium, on both portfolio to the market and on the trust itself, has come down considerably
- Trust has exposure to industrials and cyclicals which leaves exposure to an economic slowdown
- Investment style has become out of favour as market focus has shifted to value
- Smaller companies are often higher risk in market sell-offs