Green investors should take a look at this environmental investment trust.
Impax Asset Management has tapped into the increasing amount of money being poured into the environmental sector in the Asia Pacific region, particularly China, Japan, Australia, Singapore, and the ASEAN countries.
It launched Impax Asian Environmental Markets (LSE: IAEM) in October 2009. In the current environment, it was an ambitious launch, but by placing and offer, it raised £104.5m. Impax claims this was the biggest IPO in the UK for over a year. The shares were offered at £1, with a 1 for 5 subscription share bonus. The shares began trading on 23 October and, as I write, stand at 111.7p, at a slight premium to NAV at 110.9p.
3 E's -- Excellent Environmental Experience
Impax has a lot of experience in the environmental sector. It invests mainly in quoted companies involved in alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management.
It has an existing fund called Impax Environmental Markets (LSE: IEM), which has been managed by Ian Simm and his team since launch in 2002. It's capitalised at £350m and invests globally (overall Impax manages £1.3bn of assets in this sector).
Impax Environmental Markets has a good long-term track record, up 69.3% over the last three years. Overlap between the two trusts, however, is minimal. Two thirds of the first fund's assets are in the US, the UK, Spain, Canada and Switzerland.
The scale of the market
The case for Impax Asian Environmental Markets looks strong to me. The Asia Pacific region is home to almost half the world's population, and is becoming increasingly urbanised.
A key market driver is an expected increase in standards of living. Many countries in the region have scarce natural resources, particularly clean water, oil and natural gas, and experience poor water and air quality in industrialised areas.
Impax offered some very interesting facts in the prospectus for the Asian fund. First, it estimates that the size of the global market for environmental products and services was in excess of US$500bn in 2008, and is estimated to grow at a compound annual rate of between 12% to 15% over the next 3 to 5 years.
Next it points out the competitive advantage of lower labour costs for companies in the Asia Pacific region, enabling them to operate with relatively low capital intensity. For example, in 2008 the cost of manufacturing solar cells (excluding the cost of silicon) was US$0.30 per watt peak in China and in excess of US$0.60 per watt peak in Europe.
Impax estimates that the Asia Pacific market for renewable power generation equipment was US$23bn in 2008 (with expected compound annual growth of approximately 20% over the next three years), while the Asia Pacific market for products and services in the water sector was US$55bn in 2008 (11% compound growth expected over next three years).
A big universe of companies to choose from
You might have thought that it would be operating in a very small universe, but Impax has identified 340 companies that have at least 20% of their turnover, profits or capital invested in environmental markets in the Asia Pacific Region. Aggregate market capitalisation of these was US$687bn back in October. This was split 17% renewable energy, 38% energy efficiency, 12% water treatment and pollution control, and 32% in waste treatment and resource management.
Impax has appointed Aija Partners Asset Management (HK) Ltd as investment adviser to assist with research on stocks eligible for the portfolio. Based in Hong Kong, Aija also has offices in Beijing, Seoul and Tokyo.
The FTSE Environmental Opportunities Asia-Pacific ex-Japan Index was launched in June 2009 (yes, there's an index for everything these days). Impax has back-cast prices of the index's starting constituents to show that it would have provided a total return of 64% for the period between 30 June 2006 and 6 Oct 2009. Over the same period, the region as a whole returned around 19%.
Already at a premium
This fund is in a high-profile sector, and the failure of Copenhagen will probably keep it under the spotlight. It's little surprise that the trust has moved up very positively in a short time, and to a premium. I suspect it will be fully invested very quickly.
All the other investment trusts in the environmental sector stand at a discount to their net asset value, but they are mostly wholly invested in North America and Europe. So this Asian fund is certainly worth looking at for diversification and sector strength -- though you may want to wait until it drops to discount before making any purchase.
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