Jupiter Green 08 December 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Jupiter Green. 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 generate a total return by investing in companies that are developing and implementing solutions for the world’s environmental challenges.
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Jupiter Green (JGC) has a relatively flexible mandate to invest in companies of all sizes which are providing solutions to environmental challenges, such as climate change. This is expected to be an area with strong structural growth trends and JGC aims to capture them through six environmental themes designed to identify the key opportunities. These companies will be at various stages of development, which lead manager, Jon Wallace, defines as innovators, accelerators and established leaders.
Jon assumed full control in January 2021, having worked on the trust since 2014. He is able to invest meaningful positions in smaller companies due to the relatively small size of the trust, being just c. £55m in net assets. This gives him the flexibility to invest globally and across the market cap spectrum, enabling the trust to hold smaller, fast-growing companies which larger or more generalist investors often overlook (see Portfolio).
Market volatility has had an impact on performance in 2022 and JGC has slipped to a wide Discount as investors have rotated away from the growth style of companies in which the trust invests. However, Jon believes that the macroeconomic backdrop has reinforced the drivers for his companies, for example as the world continues to seek better energy efficiency and security. Jon is remaining watchful, though, and has toned down the more nascent names in the portfolio by reducing the so-called ‘innovators’ bucket, and has established a net cash position (see Gearing). This positioning, as well as the nimbleness afforded by the trust’s size, may allow Jon to take advantage should there be a turnaround in market sentiment.
Energy security has been one of the hot topics of 2022 for politicians and we believe this trust is set to benefit from it, especially through the manager’s ‘Clean energy’ and ‘Green Buildings & Industry’ themes, the latter focussing on energy efficiency (see Portfolio). And yet the trust has marginally underperformed both its closest peer and the wider market in the year, as investors have focussed on the impact of rising interest rates on the growth type of companies held by JGC. To us, there seems to be a disconnect between the market’s short-term reaction to rising interest rates and the underlying long-term drivers of these businesses. This disconnect may offer an attractive entry point for long-term investors.
The opportunity is also reinforced by the wide Discount which JGC is currently trading at, especially compared to its closest peer. Much of this discount came about in a short period in early 2022, showing how quickly sentiment can impact the trust. We believe that this could reverse just as quickly, should macro fears subside and investors start to recognise the benefits to the structural growth story.
JGC has undoubtedly a growth bias which has impacted performance this year. However, we believe that the trust offers a very pure exposure to the long-term growth runways that environmental themes offer. The nimble size of the trust means that it offers investors a very authentic investment vehicle for those looking to benefit from climate change solutions.
- Trust is trading at a very wide discount
- Underlying themes have been strengthened by geopolitical issues
- Net cash position enables manager to take advantage of weakened valuations
- Growth bias could lead to further weak performance if interest rate rises continue
- Smaller company focus which may mean more economic sensitivity
- Relatively short track record under new approach