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Green grosser

Jupiter’s £306m ecology fund celebrated its 20th anniversary last week.

The fund has returned 414 per cent since launch in April 1988, compared with an average of 343 per cent in the specialist sector.

Under its fourth manager, Charlie Thomas, the fund has tapped into six investment themes of water management, clean energy, environmental services, green transport, waste management and sustainable living.

Head of socially-responsible investing Emma Howard Boyd says the fund was launched with the growing emergence of the environmental movement. She says: “In the mid to late 1980s, we started to see things like the Montreal Protocol, which was the first global agreement on the depletion of the ozone layer. The World Commission on Environment and Development put together the Brundtland report, also called Our Common Future. This is when these issues started to come to the fore.”

She says that the six investment themes derive from three key drivers of growth – legislation and government support, corporate governance and longer-term consumer purchasing trends.

“If you look at the EU legislative framework adopted over the past 20 years, it has grown from something like 25 pieces of legislation a year at the fund’s launch to over 100 in recent times.

“The Australian election before Christmas was the first to be won or lost with climate change as the key focus. As soon as prime minister Kevin Rudd won, he signed up to the Kyoto Protocol,” she says.

Howard Boyd singles out the Stern review in October 2006 as crucial in moving green investing into the mainstream. She says: “I can see the Stern review’s impact across all remits. Our inflows picked up and I heard from companies that consumer trends were starting to change. It helped move it from a niche green movement and made it mainstream by forcing people to take it seriously.”

Thomas took over the fund from Simon Baker in 2003 and says one of the biggest benefits is the consistent style of management since launch. He says: “We are investing predominantly in companies investing in financial solutions, so as we see more environmental concerns, it creates invest-ment opportunities.

“Our style has always been on long-term investing as these trends take a long time in manifesting themselves. The Brundtland report set out guidelines for sustainable development in meeting the needs of people today without compromising future development. That is still only beginning 20 years later.”

Thomas says it is this premise that has resulted in 12 stocks out of the portfolio of 90 stocks remaining within the fund for the past 14 years.

“That point is exacerbated by the fact that the green investment universe has grown from 250 companies to well over 1,000 today. I see 450 companies a year, equivalent to two a day. That is the intensity we now have in this sector,” he says.

The portfolio is consistently weighted towards small and mid-cap firms. Thomas says: “We are looking at one company in the US that is a good example of innovation. The group makes carpet tiles out of plastic Coca-Cola bottles. The floors in Jupiter’s offices are made by Interface. This would qualify as a waste company, as when they are finished, they can be shredded and reused.

“Most people think of waste as rubbish trucks and landfills. We look past wind turbines as people need to realise that 80 per cent of the solution of climate change is in improving existing infrastructure such as energy efficiency and insulation. Only 20 per cent is renewables but that is what catches people’s attention.

“A politician would rather have their photo taken next to a gleaming turbine that is sparkling and brand new than a piece of yellow and brown insulation that is a bit floppy but that is what will deliver. It is practical rather than glamorous.”

Thomas admits that not all stocks are immune to market volatility and he has built up a cash weighting of 20 per cent which he will look to invest at the right point.

He says: “We have got orders with dealers on companies we have done lots of work on and if prices fall to what we see as fair value, then we are in the market to buy stocks. We are certainly seeing more attractive valuations.”

Despite the fund returning 414 per cent over 20 years and 53.6 per cent in the past three years, Thomas believes we have only seen the tip of the iceberg.

He says: “Looking at the environmental legislation growth in the EU alone indicates just how much is happening now. We are going to see similar trends in the US, which is well behind the curve, and then we are going to see the same in Asia.

“The UK is the centre for green investing but we will see more in North America and Asia where the growth markets will be. As we see those opportunities, exposure will go up in those markets. That is why you will see a number of cross-holdings with ourselves and other Jupiter managers in those sectors as they are fans of the green story. We have the core knowledge and will leverage off their local expertise.”


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