Juliet Schooling Latter, research director, FundCalibre, continues her assessment of funds at or approaching their three year track record.
It’s ironic that the 2021 United Nations Climate Change Conference (COP26) took place the week of Halloween, given how scary the threat now is.
Boris Johnson summed it up nicely when he said the world is at one minute to midnight in terms of preventing a climate change catastrophe. We know attempts are being made to tackle this, but are they happening fast enough?
The problems are staring us right in the face. Carbon emissions are estimated to rise by 5 per cent to almost 33 billion tonnes in 2021 – the second highest year on record – and we already have more than 1 million species at risk of extinction by climate change*.
Countries are reacting, At the time of writing, both China and India, two of the largest emitters of carbon dioxide, have committed to net-zero targets by 2060 and 2070 respectively. The European Union and the US have set 2050 as their own target**. It’s no easy task as, in order to limit the temperature rise to a maximum of 2C, an estimated $2.4 trillion per year will need to be spent or reallocated.
“If you add up all the country development plans released into the COP 26 conference, they suggest that emissions in 2030 are going to be around 16 per cent higher than in 2010. If we were on a net zero pathway, they would be about 45 per cent lower. We need to make an enormous change to investment – we think global climate finance today is about $700bn and the International Energy Agency net zero report earlier this year suggest it should be $4-5trn.”
That’s the view of Deirdre Cooper, co-manager of the Ninety Global Environment fund. Deidre, who manages the fund alongside Graeme Baker, believes the move should result in a significant tailwind for the product.
The fund itself is a high conviction portfolio of 20-40 names with a high active share. The process starts with a proprietary screen, which generates a universe of around 700 companies, only 7 per cent of which overlap with MSCI All Country World Index.
This screen works by analysing the levels of carbon dioxide that will be avoided by using one company over an alternative – going right through the business’ products and services, supply chain and areas of activity. As well as avoiding creating carbon emissions, companies will also have to have at least 50 per cent of their revenues from three sectors: renewable energy; efficient use of resources, and electrification.
The analyst team will then examine the credentials of each company further, looking specifically at financial and ESG criteria, as well as a company’s competitive advantage. This will leave a list of around 100-150 companies.
From here, Deirdre and Graeme will lead the process, producing a full level fundamental analysis of each company. The team builds all its own models, primarily based on cash flow and growth levels. It will also meet management teams, helping them further understand their engagement and commitment to further decarbonisation.
Top holdings at present include American energy company NextEra Energy, Waste Management Inc and Croda International***.
Although the OEIC version was launched to UK retail investors in December 2019, the strategy itself was launched earlier the same year in February as a Luxembourg SICAV and is about to mark its third anniversary. Over that time, the strategy has returned 98.8 per cent to investors. This compares to 50.5% for the average IA Global fund***. The OEIC fund has an ongoing charge of 0.88 per cent****.
The approach of Ninety One Global Environment is genuinely unique. The proprietary screen used to build the investable universe is impressively comprehensive and dynamic to ensure the futureproofing of the strategy in the event of considerable technological enhancement. It is perfectly placed to tap into what is likely to be one of the largest economic tailwinds globally for the next few decades.
*Source: Earthday.org
**Source: aljazeera.com
***Source: fund factsheet, 30 September 2021
****Source: FE fundinfo, total returns in sterling, 25 February 2019 to 2 November 2021
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
[Main image: joshua-rawson-harris-KRELIShKxTM-unsplash]
