Looking at resource optimisation and environmental markets.
Bruce Jenkyn-Jones, Manager, Impax Environmental Markets
The global population is growing rapidly. It is estimated to exceed 9 billion by 20501, with most of this increase in urban centres in developing countries. New patterns of consumption are emerging as we witness an unprecedented rate of wealth creation in China and India. Concerns about scarcity of natural resources, pollution, energy security and climate change are all trends today that will impact our future. Policy makers and investors worldwide are recognising the need to optimise our efficient use of natural resources. Globally, companies are responding with innovative solutions in energy efficiency, alternative energy, resource recovery, water and food and agriculture markets.
These environmental and resource optimisation markets look set to deliver strong long term growth, compared to other sectors of the economy and, if approached correctly, investment outperformance.
Impax has identified a universe of 950 specialist companies targeting the above opportunities, with a combined market capitalisation in excess of $0.8 trillion5. Successful investing in this area not only requires a deep understanding of the industries in which these companies operate, but also the mis-pricings that occur because of the inherent complexity of technologies, changing regulation and the fact that many are not well researched by the wider investment community.
Impax Environmental Markets plc (IEM plc) provides investors broad access to these diverse, high growth markets.
Keys to success
- Invest dynamically across the sectors to maximise diversification;
- Look for indicators of low valuation, principally taking into account the impact of changes along the industrial value chain in which a particular company is operating;
- Build a portfolio that reflects the outlook for generic equity markets, particularly relative to investor appetite for cyclical versus defensive stocks, and taking account of special situations such as potential M&A activity;
- Take a long-term perspective on the prospects of an individual company, while proactively trading its stock to reflect under- or over-valuation.
A number of catalysts are spurring a current re-rating of environmental and resource optimisation stocks. Alongside the obvious benefits of rising earnings and wider investor confidence across the global economy, stock ratings should rise further following the announcement of new US policies to conserve water, reduce flood risk and potentially further limit greenhouse gas emissions. There have also been a number of positive regulatory news announcements on energy policy and pollution control from Japan, China and Europe. For example China recently announced a major investment upgrade in air pollution control, waste, water treatment and polluted soil rehabilitation. The combined projected investment is significantly higher than the 3.4 trillion Yuan (US$ 550 billion) outlined in the 12th Five Year Plan for environmental protection, with this investment to be deployed by the end of 2015.
In “The Second Bounce of the Ball: Turning Risk into Opportunity”, his 2010 book on venture capital investing, Ronald Cohen reminds investors that those who correctly anticipate economic trends and make timely commitments of capital should benefit handsomely. Investors who ignore these fundamental economic drivers could miss out on an enormous opportunity for value creation.