Global Sustainable Equity: news and opportunities (Q2 2018 update)

24/04/2018

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​Hamish Chamberlayne, Portfolio Manager for Janus Henderson’s Global Sustainable Equity strategy, discusses recent developments affecting the world of Sustainable & Responsible Investment (SRI), and the strategy’s positioning, performance, and activity.

The first quarter of 2018 saw contrasting fortunes, with the MSCI World Total Return Index reaching all-time highs near the end of January, before falling back to mid-November levels. Although US tax reform and broad economic strength aided corporate earnings, investors sold stocks following tit-for-tat trade tariff moves between the US and China and over troubling news about Facebook, which triggered a sell-off in the technology sector.  Facebook data on up to 87 million people may have been improperly shared with Cambridge Analytica (Facebook is not owned within the strategy). 

Technology – optimistic about ‘the cloud’ and semiconductors

A central processing unit. Source: iStock

Despite this news, we remain optimistic about the outlook for our selected technology investments. We believe we are at the early stages of both cloud computing adoption and broader semiconductor usage. Both are areas where we have significant exposure. Enterprises are being forced to digitalise to remain competitive and digitalisation is now considered a top priority for senior management. Companies favoured in our strategy such as Microsoft, Adobe, Salesforce.com, Autodesk, and SAP offer cloud-based software solutions that can be quickly deployed and offer a way for customers to improve efficiency, customer service, and reduce their carbon footprints (due to cloud computing typically being run on carbon neutral datacentres). Additionally, we view semiconductors as a fundamental building block in the digitalisation of all sectors. Semiconductors are being adopted in a wider array of applications as we transition to a smart and connected world.

One such example of semiconductor usage is the auto industry, where the shift to electric and autonomous vehicles is resulting in a significant increase in the amount of semiconductor content required. The first quarter of 2018 saw further evidence of the magnitude of this transition, with Volkswagen (one of the world’s largest auto manufacturers) announcing a €20bn battery technology investment. We also witnessed further encouragement at the government level, with China adjusting electric vehicle (EV) subsidies to only include vehicles with over 150km range (from 100km previously). At the civic level, German cities now have the legal authority to ban diesel cars and it appears that Stuttgart and Dusseldorf may be among the first to do so. This list of cities committed to combatting air pollution and climate change continues to grow, joining Paris, Madrid, Rome, Mexico City, and Athens, which have all pledged to ban diesel vehicles by 2025. We expect rapid technological improvements combined with government support for a low carbon transition to result in further disruption to incumbents who are slow to change.

Solar vision: Saudi to progress its renewable energy plans

While our long-term bearish view on the oil price is in part due to EV growth displacing demand for gasoline, we have also seen further progress in renewable energy development. Late in the first quarter, SoftBank’s Vision Fund announced a plan to support a $200bn 200GW solar power development in Saudi Arabia. When completed this site will be 100 times larger than the next largest proposed solar development and produce double the energy the whole global photovoltaic industry supplied in 2017.

Interestingly, the Saudi Government is one of the largest backers of the SoftBank Vision Fund and this move, combined with the looming Saudi Aramco initial public offering adds further support to the country’s ambition to diversify away from oil. Aside from the environmental benefits of solar energy, growth of the solar industry is expected to save the Kingdom up to $40bn annually by obviating the need to burn domestically produced oil to generate power. This 200GW solar investment will generate the power equivalent to more than 200 nuclear power stations. Having the world’s largest oil economy so visibly diversifying away from oil further supports our low carbon investment approach. 

Plastic: oceans in distress

Plastic floats among the coral. Source: iStock

Following the success of the BBC’s Blue Planet II series, the spotlight has firmly fallen on society’s obsession with plastic and the subsequent impact it is having on our oceans. Scientists estimate that if current production and management trends continue, there will be roughly 12 billion tonnes of plastic waste in landfills or the natural environment by 2050. With the global population forecast to grow to almost 10 billion people by 2050 and the ocean being a key food resource, action must be taken today.

Encouragingly, governments seem to be taking modest steps evidenced by the banning of microbeads and taxes on plastic bag and bottle usage. As oil is a primary raw material in plastic, a global shift away from plastics and towards recycling will be an incremental negative for the long-term oil price. We plan to engage with company management teams to better understand what they are doing to reduce plastic usage and waste in their businesses.

Key contributors to performance

Over the first quarter of 2018 the strategy proved resilient despite the volatile market backdrop. Stock selection within technology, financials and healthcare sectors positively contributed, while stocks within consumer discretionary and telecommunications sectors detracted.

Adobe (Knowledge and Technology theme), the developer of software for creative professionals and digital media, continued to perform strongly. The transition to a recurring cloud-based subscription model is progressing smoothly and long-term earnings power is increasing. Adobe inventions are helping to drive the creation of ideas and exchange of information – presenting new ways of solving social and environmental problems. Education is one of Adobe’s largest end markets, while the shift to digital media enables customers to reduce waste and save natural resources.

Encompass Health (Health theme), a leading provider of post-acute care in the US, rose as the company reported results that demonstrated robust organic volume growth in its home health and hospice segments. The company also announced an acquisition that should expand its presence into the US hospice segment. Following strong performance we reduced our position to a size that takes into account the potential risk of a change to government rebates. Encompass appears well-positioned to benefit from an ageing demographic pressuring US healthcare costs, because its inpatient rehabilitation centres and homecare services offer a cost advantage over senior nursing facilities.

Shimadzu (Safety theme), a Japanese manufacturer of analytical and measuring instruments, outperformed as a result of solid global demand for its scientific instruments and a positive update on its Chinese business, which accounts for over 20% of instrument sales. Shimadzu specialises in liquid chromatographs and mass spectrometers, where improved instrument performance is resulting in a growing number of applications related to food and environment safety testing, healthcare services, and drug discovery.

Key detractors from performance

Gildan (Quality of Life theme), the North American clothing manufacturer renowned for its high social and environmental standards, underperformed as competitors reported weak results. While less exposed than competitors to challenging retail conditions, Gildan is still experiencing some disruption from the ongoing shift to e-commerce. We are confident Gildan will be one of the winners in the evolving apparel landscape. Its vertical integration enables it to produce high quality garments at very competitive price points, and it has a dominant franchise in the print wear industry where it is supplying blank T-shirts and sports garments to screen printers. We believe the recent acquisition of American Apparel will lead to higher rates of growth and improved returns.

Vodafone (Knowledge & Technology theme), one of the largest operators of mobile and internet services in the world, continues to be a frustrating holding. The company reported results that were broadly in line with expectations, but top line (gross sales & revenues) growth is still weak. Adding to the pressure on shares were reports of competitive intensity in Italy and an announcement that management had recommenced deal negotiations with Liberty Global. The position is under review, but we believe Vodafone is nearing the end of its long restructuring to becoming an integrated mobile and fixed/cable operator and earnings and cash flow should start to grow again. Mobile and fixed communication networks are an essential backbone to the functioning of modern society, to knowledge exchange and to a connected more efficient world.

RELX (Knowledge & Technology theme), a world-leading provider of information and analytics for professional and business customers, declined as a result of the strong euro weighing on profitability and concerns about increasing price competition in academic journals. RELX’s services facilitate the exchange of information that drives forward science and better heath, reduces risk and fraud for industry, governments and civil society, and promotes the rule of law and justice. Principally through the information it produces, RELX has a positive impact on both the environment and society by informing debate, aiding decision-makers and encouraging research & development.

Activity and positioning

Portfolio turnover moved higher over the quarter; this is partly reflective of our collaboration with our colleagues in the Denver office (following the completion of the Janus Henderson merger in 2017). The merger has had a positive impact on the investment resources available to our strategy and many of the new positions over the last nine months have arisen through working with the portfolio managers and research analysts based there. Aaron Scully, our new team member, has been of great help to us in building good working relationships with our Denver-based colleagues.

Our positioning remains skewed towards our Knowledge & Technology and Efficiency themes, resulting in our overweight towards the information technology and industrial sectors compared with the composition of the MSCI World Total Return Index.

During the quarter, new positions were initiated in Capital Senior Living, Equinix, ING Groep, Lam Research, Salesforce.com, Sanepar, Walker & Dunlop, and Waters. Positions in Acuity Brands, AIN Holdings, Amer Sports, Arcadis, CVS Health, Delphi Technologies, F5 Networks, Invitation Homes, Tomra Systems, Trimble and Unicredit were divested. Discover more about our new stocks.

Outlook: future looks bright for sustainability

We view the market volatility in the first quarter of 2018 as somewhat overdue following the record low volatility and market strength experienced through much of 2017. As long-term investors in companies that are transforming the world for the better, we are able to use this market volatility to our advantage. We have been able to add to high conviction positions at what we consider to be attractive levels. We have been working hard to create a resilient portfolio of companies that we believe will deliver secular growth and strong cash flows regardless of the market environment.

When we look at the broader market, it is apparent that the fastest growth sub-sectors are increasingly aligned with sustainability. We are finding exciting investment opportunities in areas such as cloud computing and artificial intelligence, electrification of transport, energy efficiency, smart cities, industry 4.0, sustainable infrastructure, financial services, education & research, and healthcare. We view these as long-term investment trends that should transcend both economic and political cycles, giving us confidence in the duration of future growth. Thanks to the United Nation’s Sustainable Development Goals, we see sustainability growing in importance at company management and board level. Companies and investors are realising that sustainability simply makes good business sense. And if it makes good business sense, then it makes good investment sense. Sustainability is our investment strategy.

 

Glossary:

Carbon neutral = making or resulting in no net release of carbon dioxide into the atmosphere.

Cloud computing = the practice of using a network of remote servers hosted on the internet to store, manage, and process data, rather than a local server or a personal computer.

Central processing unit (CPU) = also known as the processor, the CPU is responsible for executing a sequence of stored instructions called a program.

Digitalise = reengineer a business using contemporary technologies, built to suit the modern customer and delivered, at least in part, through digital experiences.

Gigawatt = a unit of power equal to one billion watts.

Industry 4.0 = a name for the current trend of automation and data exchange in manufacturing technologies.

Initial public offering (IPO) = an act of offering the stock of a company on a public stock exchange for the first time.

Semiconductors = used extensively in computer chips, semiconductors have a unique structure that allows their conductivity to be controlled by stimulation with electric currents, electromagnetic fields, or even light.

Vertical integration = a strategy where a company expands its business operations into different steps on the same production path, such as when a manufacturer owns its supplier and/or distributor.

 

These are the manager’s views at the time of publication and should not be construed as investment advice. The opinions expressed do not necessarily reflect the views of others at Janus Henderson. References made to sectors and stocks do not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase them. Examples are intended for illustrative purposes only and are not indicative of the historical or future performance, or the chances of success of any particular strategy.

Les opinions exprimées ici sont celles de l'auteur au moment de la publication du présent document et peuvent différer de celles d'autres collaborateurs/équipes de Janus Henderson Investors. Les références à des titres, fonds, secteurs et indices au sein du présent document ne sauraient être interprétées comme une offre ou une sollicitation d'achat ou de vente.

Les performances passées ne préjugent pas des performances futures. Toutes les données de performance tiennent compte du revenu, des gains et des pertes en capital mais n'incluent pas les frais récurrents ou les autres dépenses du fonds.

La valeur d’un investissement et ses rendements peuvent augmenter ou diminuer et vous pourriez ne pas récupérer l’intégralité du montant investi à l’origine.

Les informations contenues dans cet article ne constituent pas une recommandation d'investissement.

A des fins promotionnelles.


Informations importantes

Veuillez consulter, ci-dessous, les informations importantes relatives aux fonds visés dans cet article.

Janus Henderson Global Sustainable Equity Fund

Ce document est uniquement à l’usage des professionnels et n’est pas destiné au grand public.

Nous vous rappelons que les performances passées ne préjugent pas des performances futures. La valeur d’un investissement et ses rendements peuvent augmenter ou diminuer et vous pourriez ne pas récupérer l’intégralité du montant investi à l’origine. Les hypothèses retenues en matière fiscale peuvent être modifiées si la législation change, et le montant de l’exonération fiscale (le cas échéant) dépendra de chaque cas individuel.

Pour tout investissement effectué par le biais d’un intermédiaire, nous vous recommandons de contacter ce-dernier directement, les frais, performances et les termes et conditions dépendant de chaque cas individuel.

Aucune des informations contenues dans ce document ne constitue ni ne doit être interprétée comme une recommandation. Le présent document ne constitue pas une recommandation quant à la vente ou l’achat d’un placement quelconque. Il ne constitue pas un contrat quant à la vente ou l’achat d’un placement quelconque.

Tout investissement devra être effectué uniquement sur la base des informations contenues dans le prospectus du Fonds (y compris les informations contenues dans les documents annexes correspondants), qui contient les restrictions d’investissement. Le présent document ne constitue qu’un résumé et nous recommandons aux investisseurs potentiels de lire le prospectus du Fonds et le document d’informations clé pour l’investisseur avant d’effectuer tout investissement.

Le prospectus du Fonds et le document d’informations clé pour l’investisseur sont disponibles en anglais, français, allemand et italien. Les statuts sont disponibles en anglais. Les rapports annuels et semi-annuels sont disponibles en anglais et en français. Une copie de ces documents peut être obtenue gratuitement auprès du siège social de Janus Henderson Investors: 201 Bishopsgate, Londres EC2M 3AE.

Publié par Janus Henderson Investors. Janus Henderson Investors est le nom sous lequel les produits et services d'investissement sont fournis par Janus Capital International Limited (numéro d'enregistrement 3594615), Henderson Global Investors Limited (numéro d'enregistrement 906355), Henderson Investment Funds Limited (numéro d'enregistrement 2678531), AlphaGen Capital Limited (numéro d'enregistrement 962757), Henderson Equity Partners Limited (numéro d'enregistrement 2606646), (sociétés enregistrées en Angleterre et au Pays de Galles, chacune réglementée par la Financial Conduct Authority et dont le siège social est sis au 201 Bishopsgate, Londres EC2M 3AE) et Henderson Management S.A. (numéro d'enregistrement B22848 sis au 2 Rue de Bitbourg, L-1273, Luxembourg et réglementée par la Commission de Surveillance du Secteur Financier).

Le prospectus du Fonds est disponible en anglais, français, espagnol, allemand et hollandais. Les documents d’informations clés pour l’investisseur sont disponibles en anglais, danois, allemand, finlandais, français, italien, norvégien, espagnol, suédois et hollnadais. . Les statuts, les rapports annuels et semi-annuels sont disponibles en anglais. Une copie de ces documents peut être obtenue gratuitement sur demande auprès des bureaux locaux de Janus Henderson Investors: 201 Bishopsgate, Londres, EC2M 3AE pour les investisseurs anglais, suédois et scandinaves; Via Dante 14, 20121 Milan, Italie pour les investisseurs italiens et Roemer Visscherstraat 43-45, 1054 EW Amsterdam, Pays-Bas pour les investisseurs hollandais; et l’Agent Payeur autrichien du Fonds, Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienne; l’Agent Payeur français du Fonds, BNP Paribas Securities Services, 3, rue d’Antin, 75002 Paris; l’Agent d’Information allemand du Fonds, Marcard, Stein & Co, Ballindamm 36, 20095 Hambourg; le Prestataire de services financiers belge du Fonds, CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Bruxelles; le Représentant espagnol du Fonds, Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; le Représentant de Singapour du Fonds, Janus Henderson Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; ou le Représentant suisse du Fonds, BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich qui est également l’Agent Payeur suisse.

Risques spécifiques

  • Ce fonds est uniquement destiné à être utilisé comme l'un des composants d'un portefeuille diversifié. Les investisseurs doivent évaluer avec soin la portion de leur portefeuille qu'ils souhaitent investir sur ce fonds.
  • Le Fonds peut perdre de l’argent si une contrepartie avec laquelle il négocie devient incapable ou refuse d’honorer ses obligations envers lui.
  • ​Le Fonds peut utiliser des produits dérivés afin de réduire les risques ou de gérer le portefeuille de façon plus efficiente. Cette méthode peut toutefois introduire d’autres risques, en particulier le risque qu’une contrepartie participant à une opération sur des produits dérivés ne respecte pas ses obligations contractuelles.
  • Les actions peuvent rapidement perdre de la valeur, et comportent traditionnellement des risques plus élevés que les obligations ou les instruments du marché monétaire. La valeur de votre investissement pourrait par conséquent chuter.
  • Si le Fonds détient des actifs dans des devises autres que la devise de base du Fonds ou si vous investissez sur une catégorie d’actif ayant une devise différente à celle du Fonds (à moins que celle-ci ne soit « couverte »), la valeur de votre investissement pourrait être affectée par la fluctuation des taux de change.
  • Si le Fonds ou une catégorie d’actions donnée du Fonds cherche à réduire les risques (comme les fluctuations de change), les mesures prises à cet effet peuvent être inefficaces, inapplicables ou néfastes.
  • Les titres sur lesquels le Fonds investit pourraient être difficiles à valoriser ou à céder au moment et au prix souhaité, en particulier dans des conditions de marché extrêmes lorsque le cours des actifs diminue, augmentant le risque de pertes d’investissement.
  • Le Fonds adopte une approche d’investissement durable, qui pourrait le conduire à afficher une surpondération et/ou une sous-pondération à certains secteurs et donc à générer une performance différente de celle de fonds ayant un objectif similaire mais n’intégrant pas de critères d’investissement durables lors de la sélection des titres.

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