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.
- For the six months to 30/09/2022 Jupiter Green delivered a NAV total return of -9.3% and a share price total return of -8.3%. This is in comparison to the MSCI World Small Cap benchmark, which produced a total return of -7.5%. However, the trust’s focus on environmental solutions means there are significant differences in industry and geographic allocations to the benchmark.
- Market volatility has had a big impact on performance. The reporting period has seen the impact of the war in Ukraine have a material impact on a number of themes in the portfolio, as have wider macro-economic factors such as inflation. This in turn has affected the market’s view on share price valuations which has put JGC’s NAV under pressure.
- In the period, the trust has widened to a significant discount, averaging at 15% but troughing at 23% in the nadir. The board have looked to support the rating through buybacks, repurchasing £0.2m shares in the period.
- The trust’s gearing facility – a two year revolving loan facility – was renewed in the period. This totals £5m which equates to approximately 10% of market capitalization, though this has yet to be drawn down.
- Chairman Michel Naylor highlights the better market and policy backdrop for the trust, “The attention of global investors and policymakers continues to focus on the war in Ukraine, its impacts on the global supply of energy, commodities and food and the inflationary consequences borne by business and consumers. The need for environmental solutions to solve the globe's climate and ecological challenges appears more pressing than ever.”
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 an area expected to have 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 Jon Wallace defines as innovators, accelerators and established leaders.
The size of the trust, with net assets of c. £55m, offers Jon the flexibility to invest in the best opportunities in the smaller-cap space from across the globe. These are firms which competitors often have to overlook, but the nimbleness of JGC means that Jon can take meaningful positions and benefit from their potential growth as the positive impact a business makes in the real-world is reflected subsequently in share price performance. Being a global strategy, the trust can diversify away the risks of regional policy and can, instead, identify businesses set to benefit from global environmental megatrends.
The past six months have seen considerable news flow, which has led to a range of implications for JGC. Inflation has continued its upwards push, driven mainly by an energy price spike as a result of the war in Ukraine. This has led to heightened interest rate expectations which has itself led to a devaluation of JGC’s ‘innovator’ stocks, which are typically more growth orientated companies. As such, valuations on both the underlying portfolio and the trust itself have been under pressure. However, many of the portfolio’s holdings, especially the ‘accelerators’ have enjoyed a boost in their prospects from these factors, particularly the clean energy and green buildings (which focuses on energy efficiency) themes. We think this disconnect between the real world impact of the news and the market reaction has arguably opened up a valuation opportunity. This can be seen particularly starkly when comparing the discount of JGC to its closest peer, Impax Environmental Markets.
Changes in government policy in the period have also been supportive to the strategy. The US have passed the long-awaited Inflation Reduction Act (IRA) which contains support for renewable energy, which the Clean Energy theme has benefitted from. This change now aligns government support, regulatory change and consumer behaviour behind the push for renewable energy which could drive growth in the long-term.
While the period has seen a negative impact on share prices of companies providing environmental solutions due to macroeconomic factors, we think the urgency of tackling climate change and the commitment of governments has only increased. In our view this has led to a disconnect between the improved underlying story and the negative market narrative, and potentially created a value opportunity.
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