The best cheap and expensive sustainable stocks we own

TL;DR

Impacts Environmental Markets Investment Trust has adapted its portfolio by cutting exposure to overvalued sectors, adding renewables and circular economy stocks, and actively managing stock holdings. The trust aims to minimize discounts and is currently focused on high-quality, undervalued stocks.

Transcript

hello and welcome to the latest insider interview i am here with john foster manager of the impacts environmental markets investment trusts john thank you for coming into the studio thanks for having me it's been a very busy 18 months two years for markets for this huge covert boom and then a bit of a crash so what have you been doing in the portfo... Read More

Key Insights

• 🤩 Impacts Environmental Markets Investment Trust actively adapts its portfolio by cutting exposure to overvalued sectors and adding new holdings in key growth areas, such as offshore wind and circular economy.
• 🈹 The trust aims to minimize discounts and is actively buying back shares to prevent a discount from emerging.
• 😮 The decline in share price is attributed to a rotation out of growth and quality stocks, driven by rising interest rates, rather than underperformance of underlying holdings.
• ✋ Undervalued stocks in the portfolio include Graphic Packaging and Bucher, while high-quality defensive stocks like Spirax Sarco and structural growth stocks like NIBE are considered worth paying a high price for.
• ⚾ The trust actively manages exposure to highly valued sectors and has a sell discipline based on valuation.
• 🫢 Oil and gas companies are not considered part of the environmental markets focus of the trust, which prefers to invest in companies contributing to the transition away from fossil fuels.

Questions & Answers

Q: How has Impacts Environmental Markets Investment Trust adapted its portfolio to the changing market environment?

The trust has cut exposure to overvalued sectors, particularly renewables, and added new holdings in offshore wind and wood plastic composite decking companies. They actively manage stock holdings based on valuation, with forced exits if a stock exceeds their best execution or top-of-the-box valuation.

Q: What are some undervalued stocks in the portfolio that the trust is excited about?

Some undervalued stocks in the portfolio include Graphic Packaging, a U.S. sustainable packaging company, and Bucher, a Swiss engineering company. Graphic Packaging has strong market positions and trades at 10 times price-to-earnings ratio, while Bucher is a conservatively run business in precision agriculture markets and trades at 13 times price-to-earnings ratio.

Q: Are there any expensive stocks in the portfolio that the trust believes are worth paying a high price for?

The trust believes that paying up for high-quality, defensive companies and structural growth stories with a long runway of growth can be worthwhile. Spirax Sarco, a steam specialist, is considered a high-quality defensive business trading at 27 times earnings. NIBE, a leading company in heat pump markets, is seen as a structural growth story but trades at 37 times earnings.

Q: Has the trust invested in renewable energy stocks and how did they handle the valuations collapse in subsequent years?

The trust had exposure to renewable energy and energy efficiency stocks during the boom in 2020 but cut its exposure due to concerns about valuations. This proved to be a good decision as these sectors corrected in 2021. The trust actively manages exposure to highly valued sectors and has a sell discipline if a stock's share price exceeds their best case valuation scenario.

Q: Why doesn't the trust invest in oil companies?

Impacts Environmental Markets Investment Trust focuses on environmental markets, and oil and gas companies are not considered part of this market according to their taxonomy. They prefer to invest in companies that contribute to the transition away from fossil fuels, such as renewable energy and energy efficiency companies.

Q: Do you personally invest in Impacts Environmental Markets Investment Trust?

Yes, I personally invest in the trust and have one-third of my pension invested in it.

Summary & Key Takeaways

• Impacts Environmental Markets Investment Trust has cut exposure to overvalued sectors, particularly renewables, and added new holdings in offshore wind and wood plastic composite decking companies.

• The trust has experienced a decline in share price in line with a rotation out of growth and quality stocks, but the portfolio's price-to-earnings ratio is in line with long-term averages.

• Undervalued stocks in the portfolio include Graphic Packaging, a U.S. sustainable packaging company, and Bucher, a Swiss engineering company. Expensive stocks include Spirax Sarco, a steam specialist, and NIBE, a leading company in heat pump markets.