Jupiter Green 10 November 2020
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.
Jupiter Green (JGC) is evolving, now with a significantly greater exposure to smaller and more innovative companies. Larger ‘established leaders’ will remain a proportion of the portfolio, but at a reduced weighting than historically.
This move anticipates COVID-19 global economic stimulus measures promising to “build back better”. The board and manager believe we will see a significant acceleration of themes the manager is already exposed to. However, they stands to benefit most those mid- and small-cap companies providing new solutions to environmental problems. This is a prime driver behind the increased exposure to these sorts of companies. JGC will also likely start to take advantage of its permission to invest up to 5% in unlisted companies, further differentiating the trust from peers.
These changes have already started to be implemented (the weighted average market capitalisation has fallen from £13.5bn to £8bn), and will materially alter JGC’s characteristics. Risk (in terms of volatility) will go up and the managers hope that a rewards will also increase. The income available to be distributed will go down, and the trust expects to employ gearing on a continuous basis (albeit not employed currently). Reflecting the change, the benchmark is now the MSCI World Small Cap Index.
JGC invests across seven sustainable themes in its portfolio, including clean energy; water and sustainable agriculture, nutrition and health. With the sustainable investments team at Jupiter at the helm, stock picking will remain the key driver for returns.
JGC has traded on an average discount of c. 5% over the past five years, and currently trades at a discount of 1%. This compares to the trust’s most similar peer, Impax Environmental Markets, which trades on a premium of 7%.
The change of emphasis in the portfolio could signify a decisive change in the fortunes of JGC. By moving away from an overall ‘core’ style, the trust is arguably more relevant to investors of all types looking for exposure to more dynamic, innovative and high-growth companies which are driving the transformation of the global economy to a more sustainable footing. The portfolio is now very different to what one might find in a typical global fund.
With the specialist and mid/small cap focus, JGC now likely complements most global portfolios. Perhaps as a result of being overshadowed by its bigger open-ended sister Jupiter Ecology Fund, JGC is small and has not featured highly on investors’ radars. JGC’s discount has been persistent, although at times it has traded at a premium: the trust issued shares at a premium as recently as January 2020.
With raised awareness that the threat of climate change is offering significant opportunities for businesses, we share the board’s view that these changes should put JGC’s shares in demand. Alongside growth-focussed investors who appreciate the innovative small caps in the portfolio, JGC will also likely appeal to ESG investors and investors who want to participate in supporting solutions for the world’s environmental challenges. In terms of performance, it is early days yet. However, if the new approach is successful, then we think it fair to assume that the valuation gap between JGC (at a discount of 1%) and Impax Environmental Markets (at a premium of 7%) will narrow over the medium term.
|Investment proposition getting more interesting as a result of changes
|Smaller and more innovative companies are higher-risk propositions than 'established leaders'
|Long track record and experience of manager
|Gearing will exacerbate the downside (as well as enhance the upside)
|Discount to NAV could narrow
|Dividend is unlikely to remain at current levels