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View the article online at http://citywire.co.uk/wealth-manager/article/a729602

Trust Insider: why Impax' time has come again

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

At the current share price the fund has a market cap of £346 million and the fund is reasonably liquid. IEM does not pay much of a yield – about 0.6% – but that is what you might expect from a fund invested in relatively fast growing companies. Impax reckons the earnings growth on the portfolio will be about 25% over the coming year (compared to an average of just over 10% for the MSCI World Index).

This growth does not come cheap. At the end of December 2013 the portfolio traded on a price-to-earnings ratio of 18.5x. This is a little higher than the long-run average for IEM’s portfolio but valuations have been moving up across the board and so IEM’s portfolio rating relative to the market as a whole is less than it usually is.

Impax is a long-term investor but is prepared to take advantage of short-term price weakness. Good recent examples of this are its purchases of Abengoa, a biofuel company based in Spain, and Schnitzer Steel, a metals recycler based in the US.

In Abengoa’s case, the weak Spanish economy led to backtracking by the government on subsidies for renewable energy, which knocked share prices of companies exposed to that area.

Impax sees hidden value in the company and thinks both the regulatory environment and the economic backdrop are improving. Schnitzer was hit by falling metal prices but it has a strong market position and is used to coping with volatile market conditions. Impax has been picking up stock at low valuations.

IEM has put some debt financing in place (a two-year sterling and US dollar facility from RBS totalling £30 million), which it will draw down in tranches. At the end of December it had about 1% net cash.

The portfolio is distributed across 67 holdings in a spread of sectors and geographies. At the end of December 2013 the top 10 holdings accounted for around 27% of the portfolio.

They included investments in waste management and recycling (Clean Harbors in the US, which manages oil and chemical waste, and Regenersis in the UK, which is involved in recycling of electronic equipment); energy-efficient construction (Kingspan in Ireland, Nibe in Sweden and Rinnai in Japan); water treatment and infrastructure (Pall, a filter company, and Pentair, a pumps and valves business, both based in the US); industrial energy efficiency (Vacon in Finland); and pollution control (Clarcor, a US-based air filtration company).

Some of these you may recognise but I would bet most will be new to you (unless you are already an investor in IEM).

In addition, the sector has a tendency to produce bubbles, for example, fuel cells, wind turbine manufacturers in the past and today perhaps the likes of Tesla.

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