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David Kimberley
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Updated 22 Jul 2022
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Disclaimer

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

  • Jupiter Green (JGC) has released its financial results for the year ending 31/03/2022. NAV and share price total returns for the period were down 3.1% and 20.5% respectively, compared to a 2.6% increase in the trust’s benchmark, the MSCI World Small Cap Index.
  • The period was undoubtedly an extremely challenging one for the sorts of companies that JGC invests in. The mix of inflationary concerns and instability stemming from the war in Ukraine meant there was downward pressure on equities markets as a whole in the second half of the trust’s financial year, but this was particularly pronounced for more growth-oriented companies in the environmental solutions and green energy sectors.
  • The trust’s discount widened substantially during the period. At the start of the period, JGC shares were trading at a 1.5% discount to NAV. This widened to approximately 16.0% at the end of March and, although there has been some movement in its share price in the intervening period, the trust was trading at a discount of 16.3% on 17 July 2022.
  • Despite these challenges, the manager believes the long-term prospects of the sectors that JGC focuses on remain very positive. Environmental solutions and green energy remain vital tools against the problems posed by climate change, with their importance and influence likely to grow in the years ahead.
  • Chairman of the board Michael Naylor said: “What is needed more than ever are innovative technological developments and fresh thinking towards environmental solutions that can drive the change necessary to deliver a decarbonisation of the global economy and a safeguarding of natural capital. In this area the opportunities are already plentiful and still growing, and it is exactly what the Jupiter Green Investment Trust is set up to capitalise upon.”

    Kepler View

    Jupiter Green (JGC) has long provided investors with exposure to companies operating across the various niches that make up the environmental solutions sector. The trust now has a bias towards small and medium-sized businesses, with manager Jon Wallace favouring those firms which look capable of delivering higher capital growth for shareholders. The trust’s small size means it has been able to take stakes in many firms that would be off limits to larger players in the market.

    The companies JGC invests in have proven to be extremely volatile over the past few years. Having first experienced a level of speculative activity during the pandemic, the mix of inflation and the war in Ukraine has led to risk being taken off the table and price compressions in the sorts of higher valuation, earlier stage businesses that the JGC team prefer. However, as the substantial widening of the trust’s discount illustrates, there is an argument to be made that investors have been unduly harsh in selling off JGC shares.

    The trust’s managers do remain conscious of valuations and were happy to reduce positions in some green energy stocks when their valuations were pushed up by speculation during the pandemic. But as the reverse has happened in early 2022, and companies saw steep declines in their share prices, Jon and his team were ready to add some exposure to the portfolio again. Jon noted recently that many companies are now trading at or around a price level that is starting to make further purchases a very attractive option.

    The JGC team have also been wary of inflation for some time and have been active in ensuring that the companies in the portfolio have the ability to pass costs on the consumers. Evoqua Water, the trust’s largest holding, provides a good example of this, having managed to continue growing its sales and profit figures into the new year.

    In the case of earlier stage firms, which may not yet have reached profitability, the team have made sure they only hold those businesses with the balance sheets and secular growth potential to weather the current market downturn. These firms, although they’re only about 15% of the portfolio, have been the biggest detractors from performance over the past 12 months but Jon remains confident that they’ll be able to continue growing and ride out the challenges they’re facing today.

    There are plenty of reasons to be optimistic about their ability to do so. Despite the current headwinds, the companies that JGC invests in seem only to be increasing in both their economic appeal and significance in our lives, as we seek new solutions to combat pollution and climate change. Indeed, according to FTSE Russell the combined market capitalisation of green economy companies rose from $2trn in 2009 to $7trn last year – a figure that is predicted to continue growing in the years ahead. We believe JGC’s approach means it is well placed to take advantage of the growth potential which the sector offers.

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