Last year Impax Environmental Markets (IEM) delivered its strongest annual returns since launch in 2002. For the 12 months ending on 31 December 2016, the trust delivered a 37.4 per cent share price total return and a net asset value per share (NAV) return of 37.3 per cent. The specialist environmental trust also outperformed both its comparative indices. The MSCI All Countries World Index rose 28.7 per cent and FTSE Environmental Technologies 100 Index returned 21.9 per cent.
Almost half of the trust's increase in NAV was due to the depreciation of sterling. Approximately 94 per cent of the trust's holdings are in overseas companies whose earnings benefited from weaker sterling following the UK's vote to leave the European Union.
North America makes up 45 per cent of the portfolio. Despite the climate-sceptic rhetoric expressed by US President Donald Trump on the campaign trail - including his threat to "cancel" the 2015 Paris Climate Agreement – co-manager Jon Forster remains positive about the outlook.
"The last few years have seen dramatic falls in the cost of many environmental technologies which no longer rely on subsidies or regulatory support," he says. "And President Trump's stated commitment to infrastructure improvements across water, transport and real estate should be positive for the [trust]."
The international reaction to President Trump's climate positioning has also been "defiantly optimistic" he adds with many countries –most notably China, via its Fifth-Year-Plan released last year– pledging stronger commitment to environmental protection.
The energy efficiency sector makes up 33 per cent of the portfolio, water infrastructure and technology makes up 20 per cent and 12 per cent of assets are invested in waste management and technology.
Water infrastructure and technology contributed particularly strongly to performance in the 2016 calendar year and water utilities such as American Water (AWK:NYQ) performed well, helped by a positive regulatory backdrop. Two of the trust's top ten holdings, Xylem (XYL:NYQ) and Watts Water Technologies (WTS:NYQ), also performed well due to recovering construction markets in the US and municipal spending to upgrade aged water networks.
The sustainable food, agriculture and forestry sector also contributed to performance. During the year the managers bought Rayonier (RYN:NYQ), a company which manages large areas of sustainable timberlands in the US and New Zealand. It was the trust's first investment into sustainable forestry since the sustainable food, agriculture and forestry sector was added to FTSE's environmental markets classification system in 2013.
Other examples of investments in the sector include Austrian fibre specialist Lenzing (LNZ:VIE), Norwegian sustainable aquaculture company, Leroy Seafood Group (LSG:OSL), and American 'connected farm' software company Trimble Inc. (TRMB:NSQ).
M&A activity also boosted performance of holdings last year. Two of the trust's holdings - Hydro International and Ovivo - were acquired during 2016 and ClarCor, another of the trust's holdings, was taken over by the Parker Hannifin Corporation (PH:NYQ)).
Mr Forster is also seeing opportunities in the electric vehicles industry and recently bought Delta Electronics Thailand (DELTA:SET), which manufactures power supplies and electronic components for the motor industry. The managers prefer to invest in the electric car supply chain than in electric cars and notably they do not own US electric carmaker Tesla (TSLA:NSQ), which recently surpassed the stock market value of General Motors (GM:NYQ). "From our perspective, the valuation is unsustainably high," says Mr Forster.
But the trust's solar energy holdings were a drag on performance, in particular SunPower (SPWR:NSQ). Solar markets have been suffering from over supply particularly in the US and China, as well as a slowdown in demand. But the trust has been taking advantage of the falling market to add to its holdings.
Mr Forster says: "We believe that short term headwinds are priced into stocks and, while our exposure is modest at around 3 per cent, we are confident that additional opportunities will emerge.
"Long term prospects remain strong given falling costs of technology and incremental opportunities from combining solar generation with energy storage."
| PRICE | 226.8p | NET GEARING | 4% |
| AIC SECTOR | Sector Specialist: Environmental | NAV | 255.1p |
| FUND TYPE | Investment trust | DISCOUNT TO NAV | 11.1% |
| MARKET CAP | £412m | YIELD | 0.9% |
| No OF HOLDINGS | 60* | ONGOING CHARGE | 1.11%** |
| SET UP DATE | 22/02/2002 | MORE DETAILS | www.impaxenvironmentalmarkets.co.uk |
| MANAGER START DATE | Bruce Jenkyn-Jones and Jon Forster: both 22/02/2002 |
Source: Winterflood Securities as at 11/04/17, *Impax Asset Management as at 31/03/17, **The Association of Investment Companies
Performance
| Fund / benchmark | 1-year share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) |
| Impax Environmental Markets | 33.3 | 53.0 | 143.0 |
| AIC Sector Specialist: Environmental | 30.4 | 39.1 | 76.7 |
| MSCI ACWI | 13.6 | 9.6 | 39.5 |
Source: Winterflood Securities as at 11/04/17
Top ten holdings as at 31/03/17 (%)
| Lenzing | 3.4 |
| Clean Harbors | 3.0 |
| EDP Renovaveis | 2.8 |
| United Natural Foods | 2.3 |
| Trimble Navigation | 2.3 |
| Sensata Technologies Holding | 2.3 |
| Xylem | 2.3 |
| Watts Water Technologies | 2.2 |
| Itron | 2.2 |
| Ormat Technologies | 2.2 |
Source: Impax Asset Management, as at 31/03/17
Sector breakdown as at 31/03/17 (%)
| Energy Efficiency | 33 |
| Water Infrastructure & Technology | 20 |
| Waste Management & Technology | 12 |
| Alternative Energy | 11 |
| Food, Agriculture & Forestry | 11 |
| Pollution Control | 9 |
| Environmental Support Services | 3 |
| Cash | 1 |
Source: Impax Asset Management, as at 31/03/17
