Jupiter Green 26 July 2023
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.
Jupiter Asset Management
Association of Investment Companies (AIC) Sector
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Jupiter Green Investment Trust (LON:JGC) owns a portfolio of primarily small and mid-sized companies from a global investment universe which provide solutions to environmental challenges, such as climate change. The investment team, led by Jon Wallace, have flexibility to allow them to capture a dynamic range of drivers, categorised into six themes that will identify companies beyond just the traditional green investing areas like renewable energy, and including the likes of sustainable agriculture and green buildings (see Portfolio). As such, JGC is likely to have a high active share, even against its small cap benchmark, though Jon and the team expect superior stock selection to provide outperformance.
Despite recent volatility in markets, especially in the smaller growth stocks which the team focus on, changes have been limited. Trading has been focussed on stock specifics, which have been driven by shifting attitudes towards environmental issues. This has improved the fundamental outlook for a number of holdings. The team believe markets are beginning to acknowledge the real-world resilience of the portfolio’s themes, and that significant momentum is building in policy and consumer and business behaviour which support the fundamental investment case for their holdings. Despite this, the trust remains at a wide Discount, likely in our view due to concerns over the portfolio’s growth bias.
Stock specific factors rather than any of the trust’s themes or investment buckets, have driven Performance so far in 2023. Broad macro factors, such as the passing of the US’ Inflation Reduction Act (IRA) which has considerable support for environmental issues, has though improved the fundamental outlook for JGC’s companies. This has helped long-term performance to return back to outperforming the benchmarks, despite a challenging 2022.
Environmental investing, for the most part, remains a niche, with many generalist trusts dipping into the space to try to capture short-term gains. However, we believe JGC offers a more thorough approach, and therefore likely to have more lasting returns. The team have a more nuanced take on the environmental sector, meaning they are able to identify opportunities other investors may miss (see Portfolio). The effect is enhanced by the smaller company bias, meaning their companies are likely to be specialists offering a solution as a sole focus, rather than being another division of a multinational. We believe this offers the trust strong long-term tailwinds, although investors need to be prepared for a potentially bumpier ride along the way.
The appetite for investing in environmental challenges has waned recently, as factors such as inflation and rising interest rates have taken centre stage. However, the drivers behind these issues have not gone away and have arguably been bolstered by the spike in energy prices, recent changes in government policy and consumer preferences (see Performance). As such, we believe the demand for products and services in the space is likely to remain robust. However, valuations have fallen based on market sentiment which may prove an attractive entry point. We believe the wide Discount that JGC’s shares are currently trading on, also as a result of sentiment towards the trust’s growth bias, further enhances this.
- Long-term structural growth drivers, through smaller companies offering a longer runway
- Trading on a wide discount versus its own history
- Wider consideration of environmental issues offers a more nuanced take on the theme
- Smaller company focus with a growth bias may struggle in a higher interest rate environment
- Structural sector underweights could lead to periods of underperformance
- Limited size means higher ongoing charges figure