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Questor: never mind Extinction Rebellion, this trust offers a path to a greener portfolio
Questor investment trust bargain: a long-established investor in global sustainability, Impax Environmental Markets looks well placed to deliver superior profits
Few readers, Questor imagines, are camped out on the streets of London as part of the Extinction Rebellion protests. But concern for the environment is widespread and many investors have started to reflect those concerns in their portfolios.
Happily, this trend has coincided with an appreciation that investing with some kind of ethical or environmental slant need not involve settling for inferior returns. Quite the contrary: evidence is mounting that assessment of firms’ environmental and governance attributes makes for better investment performance.
The trust we feature today is a case in point.
Impax Environmental Markets is one of the longest-established funds of its type. Listed in 2002, it invests in companies involved in “alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management, which includes sustainable food, agriculture and forestry”.
Over the past five years the trust’s net asset value (NAV) has grown by 14.7pc a year with dividends reinvested, compared with 11.4pc for the FTSE Environmental Technologies 100 index on the same basis.
While the fund has outperformed the other index against which it is measured, the MSCI All Counties World index, only slightly over the same period, the earnings growth of its constituent companies has, at 7.9pc a year, comfortably beaten the index’s average of 3.8pc (figures to mid-August).
Analysts expect the trust’s holdings to increase their profits by 12pc over the coming year, which is exactly double the predicted number for the index. Currently, this superior earning power is not fully reflected in the valuation of Impax’s holdings, which suggests to Questor strong grounds to expect future outperformance from the trust.
The large and experienced team that Impax Environmental Assets’ management company, Impax Asset Management, has at its disposal – the firm, which specialises in sustainable investing, runs a total of about £15bn and employs almost 60 investment professionals – enables it to seek opportunities all over the globe.
For example, Generac Holdings, an American firm that features in the fund’s top 10 holdings, supplies back-up power systems that tend to be in strong demand in the US hurricane season. It also owns an energy storage company and aims to provide a fully integrated “off-grid” clean energy solution.
Recent investments include Indraprastha Gas, the dominant supplier of compressed natural gas to New Delhi, and Littelfuse, a supplier of electrical circuit protection with exposure to the electric vehicle, renewable energy and efficient lighting markets. The trust said its focus was on increased diversification and the search for economically defensive businesses.
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Analysts at Numis, the broker, said: “The managers believe the thesis of investing in environmental markets is becoming more compelling, pressing, global and diversified by industry.
"A number of disruptive trends, including electric vehicles, the war on plastic and fast falling energy costs, suggest that companies providing environmentally efficient products and services will deliver strong returns over the long term.”
They warned, however, that markets remained volatile and the fund’s “high-conviction strategy will see periods of relative underperformance”.
This is a trust where we must expect our gains to come from the performance of the assets rather than any narrowing of the discount, as the board aims to keep the share price in line with the NAV via the issue or repurchase of shares.
This column is pleased to see that several members of the board own shares; John Scott, the chairman, has a stake worth about £260,000.
Questor says: buy
Ticker: IEM
Share price at close: 308p
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