“In the context of the weakness of the Eurozone and uncertainty about president Donald Trump’s policies, the Asian region is potentially emerging as one of the leading areas for environmental opportunities in the world,” Simm told FSA during a recent visit to Hong Kong.
Trump-friendly?
When asked about whether the growth for environmental companies will be higher in 2017 compared to previous years, Simm said it depends very much on Trump’s policies and their impact on the US economy and global markets.
“We’ve got a high margin of uncertainty in economic growth rates,” he added.
The environment theme (such as water treatment facilities) is also a part of infrastructure investing. The widely-held market view is that investments linked to infrastructure are set for high growth, given that Trump is in favour of infrastructure spending. However, if interest rates rise, the sector may face potential headwinds coming from high costs of capital, according to Simm.
In terms of asset allocation, the firm is marginally overweight water and marginally underweight renewable energy globally, according to Simm.
As of end-December, the US represents the largest chunk of the Parvest Smart Food Fund, accounting for 36.30% of the portfolio, according to its fund factsheet. By sector, the fund’s largests allocation are in consumer staples (44.08%) and materials (32.91%), which are also heavily overweight compared to its benchmark index.
The Parvest Aqua Fund also has the largest geographic allocation to the US (51.24%). By sector, industrials and utilities dominate the portfolio, accounting for 44.02% and 25.14% of the fund, respectively. Both sectors are overweight when compared to the benchmark index.
Cleaning China
Simm is positive on the environmental opportunities in the Chinese and Japanese markets.
In China, there are opportunities around solid waste management, which would include incineration and recycling facilities. Air pollution is a huge problem in China and he mentioned investments in vehicle technology and in equipment that removes contaminants from chimneys and factories.
Under China’s five-year plan, the environment gets emphasis with water infrastructure and sewage treatment investment amounting to around RMB 4trn ($580bn), accounting for almost half of the overall environmental investment plan, according to a previous research note from East Capital.
Backed by government support since 2011, China has also become the largest cleantech market in the world, accounting for almost 50% of global clean tech investments, the report said.
Another country with a sizable market would be Japan, particularly in energy efficiency, especially after around 30% of Japan’s power generation was turned off after the Fukushima nuclear disaster in 2011.
Nearly 7% of the Parvest Aqua Fund is invested in Japan and 4.25% in China, according to the fund factsheet.
Asia investor interest?
In terms of attracting investors, ESG and related investment themes have had very little take-up in Asia compared to Europe and the US. However, in Simm’s view, interest toward environmental investment from Asian investors, particularly HNWIs and institutions, started to pick up five years ago.
“It has been clear to local investors that there are tangible issues and sizable opportunities to solve environmental problems in the region,” he said.
Managing around $6bn of client assets, Impax distributes its products through its partnership with BNP Paribas Investment Partners.
In Hong Kong, BNPP IP distributes the Impax-managed Parvest Aqua and Parvest Smart Food funds to professional investors and private banks, according to a BNPP IP spokesman. In Singapore, the Parvest Aqua fund is available to accredited investors, he added.
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One-year performance to end-December 2016 of the Parvest Aqua and Parvest Smart Food funds versus their benchmark, according to data from FE Analytics. Like the broader market, both funds were significantly affected by the Brexit vote in June but have since recovered. Both funds were not significantly impacted by the results of the US elections.
