From Institutional Investor:
The Pax GEM Team: Mining the Green Market for Hidden Jewels
The Pax World Global Environmental Fund took a step back from renewable energy — and in turn renewed the vitality of its portfolio.
After a break of several years, the Pax World Global Environmental Markets (GEM) Fund has begun buying renewable-energy stocks again.
It may seem counterintuitive that a global clean-technologies fund would avoid the sector synonymous with its mandate. But the portfolio managers who run the fund — Hubert Aarts, Simon Gottelier and Bruce Jenkyn-Jones of London-based Impax Asset Management, a subadviser to Pax World Management — recognized a bubble when they saw one. They largely steered clear of renewables, and when the solar market began to unravel, resulting in scores of bankruptcies and closures between 2009 and 2013, they avoided the poor returns that plagued many environmentally focused stock funds during that time.
Thanks to such foresight, the fund now boasts a five-year annualized return of 14.09 percent for its institutional class, just under that of the MSCI World Index, which includes a broadly based collection of stocks from developed countries. The one-year and three-year returns for the institutional class, at 24.99 percent and 11.9 percent, respectively, edged out the benchmark.
Pax GEM, one of seven sustainable strategies offered by Pax World, a Portsmouth, New Hampshire–based fund management firm that focuses on sustainability and environmental, social and governance (ESG) investing, comprises both growth and value stocks of any market capitalization, at least 40 percent of which are non-U.S. companies, including some located in emerging markets. Now that the renewables sector appears to be turning around, the fund is hunting for buying opportunities in that area, most recently adding Trina Solar, a Chinese manufacturer of photovoltaic modules.
“We like to invest in markets that offer strong returns, good margins and stable and visible growth prospects,” says Jenkyn-Jones, head of listed equities at Impax. “We think that given the strong growth prospects in global markets, rather than just a couple of isolated subsidized markets, [renewables] look quite attractive at the moment. So, for the first time in a number of years, we’ve been increasing our exposure.”
The key that allows the fund to pull back in a single poorly performing sector is simple: a diverse portfolio. To pass Pax GEM’s investment muster, a company must have 20 percent of its revenue or invested capital coming from one of the resource optimization industries on which the fund concentrates — energy efficiency, pollution control, water resource and waste management, and sustainable food and agriculture, as well as renewables. The fund’s broad due diligence process includes a ten-step analysis that takes into account common investment criteria such as a company’s position in its market, stock catalysts and stock risks, particularly in governance considerations around issues like board composition....MORE
