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Trust Insider: why Impax' time has come again

by James Carthew on Jan 28, 2014 at 00:01

Trust Insider: why Impax' time has come again

About 18 months ago I had a look at Impax Environmental Markets (IEM) and its sister fund, Impax Asian Environmental.

At the time, after a period of disappointing performance relative to world markets, the two funds were out of favour with investors. I thought the problem lay mainly with the asset class and said that, although it was hard to see a catalyst that would trigger a rerating, I did think the investment case for both funds was solid.

The share prices of both funds began to recover shortly thereafter but the Asian fund was hit by selling pressure from a couple of large investors and forced to wind up last summer. Impax is still managing an open-ended version of the Asian strategy but, for now, its only listed fund is IEM.

Altogether Impax manages about £2.4 billion, with about a third of that in renewable energy projects – the sort that might eventually end up in the portfolios of the Renewable Infrastructure fund or Greencoat Wind .

These are not a feature of IEM’s portfolio, however. It focuses on companies that promote energy efficiency, alternative energy generation, sustainable food and agriculture, upgrading water infrastructure – both supply and treatment, managing waste and environmental support services.

The investment case is pretty straightforward. As populations and living standards rise, there is increased pressure to upgrade environmental infrastructure, find ways of cutting pollution and use natural resources more efficiently.

The universe is pretty large (about 950 stocks, collectively many hundreds of billions in market cap). It encompasses all sorts of companies from treating waste water associated with shale gas extraction in the US and UK to aiding efforts to reduce air pollution in China.

Right now, Impax believes most conditions are favourable for further decent performance in 2014. Signs of life in economies such as the US and UK will help boost industrial investment, the construction market and automotive sector. Governments might be strapped for cash but they are recognising that they need to continue to push the environmental agenda.

Impax believes companies in its universe are making decent returns on equity and there is a chance of an uptick in M&A activity in the sector this year. The only real negative is that the sector is not particularly cheap.

IEM’s net asset value rose by 30.5% over the past 12 months. Over the same period its share price went up 39.1% as the discount narrowed to its current level of 11.7%.

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