Here’s what’s influencing Australian equities this week according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
THERE was an unsurprising consolidation in equity markets last week following a strong run. The S&P/ASX 300 gained 0.15%, while the S&P 500 fell 0.82%.
This pause for breath has been orderly — we do not see signals of anything more meaningful at this stage.
As we move into the holiday period, we are monitoring seven key issues in coming days and weeks:
1. Will the global economy continue to surprise on the upside?
The global economy continues to run hot by aggregate measures of GDP and other indicators. However this is driven largely by industrial production.
Stimulus measures have held up consumer spending but there has been a shift from services to goods. As a result, production is running hard as depleted inventories are restocked. This is evident in commodity prices and activity data such as US railcar loadings and trucking stats.
There are signs of weaker consumer activity in the US under the current wave of Covid. This has been felt most in areas such as dining and entertainment. Retail spending remains strong although growth has slowed.
The jobs front in the US remains reasonable. Continuing jobless claims – probably the best real time measure – are slowly but surely continuing to trend down.
The impact of the latest northern hemisphere Covid wave needs to be watched — but at this point the economic situation remains solid. This is also reflected in credit markets, which are signalling a benign view.
2. Will the US see harder lockdowns?
Covid case data has re-accelerated in the US as post-Thanksgiving reporting flows through. The potential for harder lock-downs poses a risk to the current economic situation.
Localised restrictions have been enacted in some areas – particularly in California last week.
Hospitalisations and Intensive Care Unit (ICU) admissions remain the key factors to monitor. Hospitalisations are up 7% week-on-week.
The rolling seven-day average of net new daily hospitalisations is around 1000 patients. This is down from 2000 in mid-November, but the next week or two will tell if this re-accelerates due to the Thanksgiving lag.
Overall, ICU occupancy continues to sit at high levels but has not deteriorated. Average ICU occupancy in metro areas is running at about 75%, while 14% of metro areas are running at 90% or greater and a quarter are at 80% or greater.
This is the same as last week but bears watching.
We are moving into a period where traditional flu cases rise dramatically. So far this has not happened – but it could also be an important variable in pressure on the medical system.
3) Will new vaccine trial data identify any material issues?
Following initial positive news on high efficacy rates for the Moderna and Pfizer vaccines, subsequent news flow has raised some questions about health impact at the margin.
For example, data released on the Pfizer trial has shown incidence of Bell’s Palsy, lymphatic swelling and even appendicitis are all higher in trial groups taking the vaccine.
The Moderna trial will release more data this week while the UK vaccine roll-out could see other issues identified. Something to watch out for in coming weeks.
4) Ability to deliver an effective vaccine on the necessary scale
The market seems quite jumpy at any noise regarding the availability of vaccines. It’s important to remain aware of any issues regarding the supply chain. We also need to watch how effectively Moderna is able to handle its distribution.
At this point surveys suggest people’s propensity to take a vaccine continues to rise. However this is closely linked to views on its efficacy.
This may become an issue in Australia given our agreements with AstraZeneca and Novavax – and lack of agreement with Moderna.
5) Policy updates
Policy support remains the single greatest factor supporting the recovery in markets. Any signal from central banks that questions this support would be a negative. We are not seeing any sign of this at the moment.
The Fed meets this week and at the moment consensus is 50/50 on whether it will announce a lengthening of the maturity of the bonds they are willing to buy, with a view to containing the current sell-off in bonds.
Last week the European Central Bank extended the length of its current bond-buying program, without adding to its intensity.
The ECB struck a cautious tone, offering no comment on how much it planned to buy each month, saying only it would respond to conditions. This suggests there is greater push-back on the level of stimulus within Europe.
On the fiscal side, the odds of a near-term deal are also around 50% — and have probably deteriorated in recent days.
The tide of liquidity supporting the market is manifesting in several interesting ways. Equity market valuations look very high by historical standards in the US. Although the relative yield between equities and other asset classes is also at high levels, which is supportive.
6) Georgia Senate runoffs
Runoff elections due to take place in the US state of Georgia on January 5 have the potential to move markets. Recent polls suggest a close-fought race.
If the Democrats ended up with control of Congress, it would shift expectation on a fiscal package, prompting a further sell-off in bonds and rotation to value within equity markets.
7) Brexit
A potential wildcard. The situation remains fluid, and it seems negotiators have bought themselves more time overnight.
Markets outlook
Bond yields fell 8bps (US 10-year sovereigns) on concerns on the impact of lockdowns in the US. There will be a lot of focus on the Fed meeting this week, to see if it extends the duration of the bonds they are will willing to buy, to keep yields under control.
In commodities, iron ore continued higher on end-of-year restocking, as well as concerns that recommendations on the government inquest into the Juukan Gorge incident may have some impact on supply.
The Australian dollar broke higher, up 1.4% against the USD, on the back of good domestic economic indicators and higher commodity prices. It is sitting at 75c and may strengthen – an aspect to watch for some stocks.
The Australian market was led last week by Resources (+2.45%). There was some rotation back to growth and defensives following a couple of weeks of under-performance. Information Technology gained 2.76% and Consumer Staples was up 1.5%.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds.
He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
How many As are enough?
School reports are out this week and for highly driven students (and some parents) anything less than an A is disappointing. For others a single A can be a source of celebration.
Two Australian states this week lost an A.
S&P downgraded NSW from AAA to AA+. This came as no surprise given the massive increase in debt this year.
More surprising though was Victoria, which was double downgraded from AAA to AA, falling from the equal highest-rated state to the lowest.
Victoria has had a double downgrade before. In 1992, while struggling to emerge from a severe recession and the collapse of the State Bank of Victoria, the state was hit by a double downgrade from Moodys.
There were massive blowouts in the spreads of Victorian bonds and a sense of panic crept in. The downgrade was viewed as unacceptable by the new Liberal government of Jeff Kennett, which embarked on a program of asset sales and expense control to regain the AAA. It took six years.
Today we live in very different times. We no longer have mainstream economists and supposed experts like the IMF recommending a dose of large fiscal cuts as the remedy. Cutting government spending at a time of large private sector cuts is seen for the stupidity it always was.
More importantly at a federal level there has been a gradual realisation over the past 20 years that a government in control of the printing press has far more debt and fiscal capacity than previously thought.
We can thank Japan for first experimenting with what were then considered the “crazy” ideas of Modern Monetary Theory.It turns out the framework behind MMT is actually right — something that has embarrassed the many mainstream economists who predicted doom.
Since the facts disrupted the views of these economists they have been busy trying to exercise a triple reverse twist dive to pretend they could see this all along. Even worse, some are revealing their continued ignorance of MMT by still referring to it as “an impossible free lunch”.
This time governments and markets have correctly shrugged their shoulders at these downgrades as largely ho hum.
The cost of debt has barely budged. The RBA and banks chasing High Quality Liquid Assets are soaking up the extra supply. Debt has never been cheaper.
Governments have learned that the welfare of their citizens, particularly in a crisis, is more important than an extra A in the credit rating.
Over the next decade it will be inflation — not the rating agencies — that limits what a government can do. If inflation emerges it will hopefully be the “good kind” brought about by a strong economy, which would be fixing government finances.
The bad kind of inflation — supply-driven or stagflation — would be a different matter.
But that is a topic for another time.
Tim Hext is a portfolio manager with Pendal’s Bond, Income and Defensive Strategies team.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager:
https://www.pendalgroup.com/about/our-people/sales-team/
PENDAL is proud today to introduce Regnan Global Equity Impact Solutions Fund in Australia.
The new fund is one of the first to provide Australian investors with access to global public market impact assets. The announcement follows the successful launch of Regnan Credit Impact Trust in January 2020.
Regnan, a specialist ESG research, engagement and advisory business that is fully owned by Pendal Group, expanded into global investment management in 2020 with the appointment of a four-person Global Equity Impact investment team.
The fund is offered as part of Regnan’s Global Equities Impact strategy which is available in the UK and now in Australia. The strategy is managed by Regnan’s London-based investment team and marketed by Pendal’s distribution team locally.
“The Regnan Global Equity Impact Solutions Fund is an important step in our vision to develop Regnan as one of the world’s foremost responsible investment managers,” said Pendal Australia Chief Executive Officer Richard Brandweiner.
“It’s an innovative investment strategy developed by a dynamic and passionate team with proven credentials as impact investors.”
Positive impact, active returns
Impact investment products are in high demand. The value of Australian impact investments is forecast to grow to $100 billion in five years — five times the current market size of $20 billion, the Responsible Investment Association Australasia reports.
Regnan Global Equity Impact Solutions invests in mission-driven companies that provide solutions for the growing, unmet sustainability needs of society and the environment while seeking to generate strong financial returns.
Using a proprietary taxonomy system, Regnan has identified more than 50 areas of potential investment based on the United Nations Sustainable Development Goals — and some 2200 innovative companies well-placed to become leaders in these new markets.
“We are excited to launch the fund in Australia,” said Tim Crockford, Head of the Regnan Equity Impact Solutions team.
“Impact investing is a nascent and fast evolving space. Our ethos is about investing in companies that are trying to solve environmental and social challenges like water and food security and embedding circular economy in their business principles. For us, the impact case is the investment case.”
Hear more from Tim Crockford in this video.
Click for detail about Regnan Global Equity Impact Solutions fund
Regnan’s new look
Reflecting its new, expanded mission, Regnan has introduced a new look and a new website.
The new Regnan logo evokes shifting tectonic plates, signifying the permanent change that sustainability brings to the investment landscape.
Australian investors: For more information, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.
Information for UK, European and other international investors: www.regnan-johcm.com
WE believe the next opportunity in Emerging Markets lies with identifying the rebounds and countries that have lagged.
Here senior portfolio manager James Syme explains why he believes this opportunity will drive a rebound in the relative performance of Pendal Global Emerging Markets Opportunities fund.
Watch this 5-minute video Q&A with portfolio specialist Chris Adams or read the transcript below.
TRANSCRIPT
Portfolio specialist Chris Adams: We’re seeing a narrow rally in growth-oriented East Asian tech, which has driven gains in emerging markets.
Since March we’ve had exposure to the theme, but we believe there is more to emerging market growth opportunities than a handful of these stocks.
We believe the next opportunity in emerging markets is identifying the rebounds and the countries that have lagged.
Very few of the 26 emerging markets (EM) have actually outperformed the index this year.
This rebound will occur at different rates at different times in emerging markets, we believe, based on the economic structure and policy options.
James where do you see the specific opportunity to make money in Emerging Markets (EM) from here?
Portfolio manager James Syme: There are two areas of particular interest and the portfolio’s exposed to both of them.
The first is in the countries outside the East Asia, China, Korea and Taiwan space, where we’ve generally seen a lag in performance.
We saw a lot of money leave those markets back in March and April, and that’s only really started to recover.
Now it does feel that November was a real sea change in markets. We saw some strong out-performance from some of those areas including parts of Latin America and including India.
That’s been driven by the pre-existing conditions of low interest rates, a weak dollar and local recoveries; and then new optimism from vaccine news, the change in power in the White House and particularly with a pickup in flows.
So some of those areas we see great opportunity as they go into recovery, which really doesn’t seem to be priced into markets.
Then secondly, in the East Asian space we’ve seen under-performance of Korea relative to China and Taiwan year to date.
Korea is a much more cyclical economy. We saw big outperformance of Korean equities in November and the portfolio is significantly overweight Korea relative to China and Taiwan within that East Asian space.
Chris Adams: I’m assuming Korea is one of your highest conviction positions. Where else are you seeing a lot of conviction with EM at the moment? And why do you think they’ll outperform from here?
James Syme: Within India we’ve seen a big build-up of liquidity and savings in the economy, a big deferral of consumption year-to-date because of the coronavirus lockdowns.
We see some real evidence of a turn in the Indian economy. We’ve seen improving coronavirus data there. We have significant exposure in the portfolio to India.
We’re becoming much more positive on opportunities within Latin America. Mexico is a big beneficiary of the Biden presidency, as well as normalisation and recovery in the US economy and in the Mexican economy.
We’ve moved more positive on Brazil. We’ve moved to a neutral position there. In Brazil we’re seeing an increase in optimism and foreign investor flows. There a few more stages we’d like to see before we went fully overweight Brazil.
But it’s those kinds of markets — markets like India and Mexico and further down the line potentially Brazil — rather than simply adding more and more to the pre-existing tech winners that did so well through the summer.
Chris Adams: Where do you see the largest investment risks clustered within the EM universe at the moment?
James Syme: It’s always the case that the biggest opportunities in markets are where consensus is universally bearish and the biggest risks are where consensus is nearly universally bullish.
There are some great companies in that technology space that have done very well from the effects of the coronavirus, as well as from underlying secular trends.
Within some of those, we’ve seen some extremely heavily owned stocks trading at very expensive multiples. They’re good businesses but it’s hard to see the marginal piece of good news that can drive them even higher.
I think this is a time to be more rotational and contrarian rather than simply trying to rely on those tech businesses getting another 10% better from what already looks like extremely strong operating conditions that have been priced into those markets.
Chris Adams: Do you need to see a large sell-off in some of those tech stocks to outperform or is there something else that’s going to drive relative performance?
James Syme: No, I think particularly if we see a recovery in investment flows into some of these markets like India and Mexico, and some of those other less technologically export-driven markets, we still haven’t seen the recovery from the big unwind in March and April.
I think these markets can deliver good returns in their own rights, irrespective of what happens with the internet and tech space.
More information: Download a PDF article with the further detail on Pendal’s Global Emerging Markets Opportunities strategy.
James Syme is a senior portfolio manager and co-manager of Pendal’s Global Emerging Markets Opportunities fund.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Here’s what’s influencing Australian equities this week according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
US Covid number continue to increase, while payroll data is disappointing. Nevertheless, equity markets continue to rally.
A number of recent developments bear watching:
- Polls indicate the Democrats may win both of Georgia’s Senate seats in the January run-off, which could hand them control of the Senate. The market has welcomed the prospect of divided US government. This could change that view.
- Delays in approval for the AstraZeneca vaccine — pending more thorough tests — may mean countries outside of the US might not achieve herd immunity until the end of 2021.
- There is some commentary around the potential for vaccine production to be held back by a lack of key inputs such as vials and needles.
- There is potential for certain strains of Covid to be vaccine resistant — specifically the N439K strain which is rare but shown to be resistant to some antibodies in recovered patients.
Nevertheless, the market remains sanguine. The S&P/ASX 300 gained 0.55% and the S&P 500 was up 1.72% last week.
The recent strong run may mean we are in for a period of consolidation — though not necessarily a material pull-back.
We still see plenty of supportive factors for markets in the near term, including:
- Vaccine means a resolution to the impact of Covid is on the horizon
- High case numbers, concerns on the economy and uncertainty on the roll-out of vaccines mean policy makers remain in the mindset of “whatever it takes”. Fiscal and monetary stimulus remains in place as a result.
- The Democrat win in the US — with Congress likely divided — means the end of the unpredictability of the Trump Administration, but lower chance of a dramatic new policy agenda.
- China’s economy continues to outperform the rest of the world. Positive interest rates are attracting capital which supports the RMB and Chinese spending power. This is good for commodities.
- Australia is in the sweet spot of summer + Covid suppression + a potential vaccine before winter. This provides a reasonably clear path for the economy.
- A Brexit deal possibly ends some uncertainty in Europe.
In the market, low rates continue to support growth stocks, which are holding up well. Value stocks are benefiting from accelerating growth and greater earnings certainty all supported by substantial liquidity. This means the current rally has decent breadth.
Covid outlook
Europe continues to improve, leaving the US as the flashpoint for the northern hemisphere wave.
It is still too early to read the consequences of the Thanksgiving break. The next two weeks will be important to determine if this has triggered a re-acceleration.
Regionally the worst states in the Midwest have begun to see some relative improvements. This has been offset by a re-acceleration in Florida, Michigan and New York — though some of this is a catch-up in post-Thanksgiving reporting. Some of the greatest strain on hospitals had been in the Midwest, so this is a marginal positive.
Hospitalisation growth broadly remains more limited than case growth at about 10 per cent. ICU occupancy improved marginally in the Midwest, which had been under some of the greatest strain. But we are seeing a broadening of severe cases, making it harder to help the badly impacted states. There are also reports of healthcare staff shortages emerging.
Economic outlook
Total non-farm payroll data for November was disappointing, suggesting the jobs rebound is decelerating. Though overall unemployment continues to fall.
This may not have too great an impact on Q4 GDP growth, given the strength in industrial production for export and to restock inventories. This continues to drive a disconnection with sluggish real-time mobility data — and the initial data for Cyber Monday retail sales — but suggests Q4 GDP may be stronger than many expect.
Softer payroll data raises the near-term chances of a fiscal package. Commentators suggest something in the order of $US500 million to $US1 billion. There are some signals the Fed may start extending the duration of the bonds it is purchasing.
Globally economic signals remain positive as industrial production ramps up and the expectation of significant on-going fiscal stimulus drives industrial commodities.
Copper rose to a 7-year high. Iron moved higher too, as Brazil’s Vale announced a smaller-than-expected increase in production next year.
These moves in commodities are driving mining stocks globally. The US mining sector has broken back above pre-Covid levels, while Australian resources look set to do the same.
Markets
Ten-year government bond yields rose 12bps in the US and 10bps in Australia, reflecting the USD fall and the rise in commodity prices. This is supportive for the market’s value stocks.
We don’t see the slow rise in bonds as a negative for equities. It’s borne of higher optimism about future growth and a belief the Fed will be later in the cycle to raise rates than normal.
The implied message from central banks is that savers will have to take one for the team in terms of an extended period of low rates.
This is beginning to be reflected in expectations of equity market performance — and in equity market ETF inflows, which have rapidly accelerated since the US election and vaccine news.
US market valuations for the five largest stocks remain extremely elevated. Beyond this, the recent “catch-up” by other parts of the market has left their valuations looking full in historical terms. Nevertheless there is the potential to rise further, particularly given the sharp recovery in earnings coming through.
In the Australian equity market a sell-off at the end of November has quickly reversed. Resources led the way last week (+5.43%) while growth names (Technology +0.34%, Health Care -2.36%) and defensives (Utilities -2.18%, Consumer Staples -0.09%) lagged.
Again, macro factors were important at the stock level. Mining stocks have broadly consolidated for a number of months, but a weaker USD and stronger global demand have the potential to prompt a move higher relative to market.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds.
He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, molecular diagnostics innovator QIAGEN.
LABORATORY and diagnostic tests influence 70 per cent of medical decisions — but account for only 2 to 5 per cent of healthcare spending, the US Health Industry Distributors Association reports.
Greater diagnostic testing could save $900 million in annual healthcare costs in the US alone, the association estimates.
In poor and middle-income countries lack of diagnostic testing is even more serious.
Some 1.5 million people died of tuberculosis in 2018 — a number that would be much smaller if the disease was identified earlier according to the World Health Organisation.
Two-thirds of cases were in eight emerging economies.
Qiagen offers innovative testing solutions
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is Netherlands-based Qiagen.
Qiagen makes molecular testing equipment and consumables for a global customer base.
Molecular diagnostics enables researchers and clinicians to quickly use biological samples to diagnose and monitor diseases, assess patient health and decide which therapies work best.
Qiagen’s molecular testing products diagnose a wide range of conditions, including tuberculosis, influenza, HIV and hospital infections. They are designed for use without requiring sophisticated expertise.
The biotech leader has also developed a number of products to help healthcare professionals quickly identify COVID-19.
For example this video shows a Qiagen solution that can prepare a sample in only two minutes to deliver results under one hour:
Qiagen has also leveraged its product philosophy to expand beyond its mainstay of infectious diseases into immune disorders and prenatal and neonatal health.
For example, the business is soon to launch a low-cost version of its revolutionary diagnostic test for latent tuberculosis detection, QuantiFERON-TB Gold.
This will make the test available for the first time in poor countries with a high incidence rate and a lack of laboratories.
Qiagen is also ramping up production of its comprehensive Covid-19 diagnostics portfolio. It is the world’s leading provider of RNA extraction kits, used as inputs for PCR tests, which detect active infections.
Qiagen’s competitive position
Leadership in technology and innovation – particularly in molecular diagnostics — differentiates Qiagen.
In the global struggle to increase and improve global diagnostics capabilities, Qiagen has achieved breakthroughs.
It has also contributed through improving the speed, accuracy and accessibility of existing diagnostic products.
Qiagen helps solve the world’s biggest problems
Regnan identifies companies such as Qiagen using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Qiagen’s activities contribute to three SDG targets for 2030:
- SDG target 2: End preventable deaths of newborns and children under 5 years of age, with all countries aiming to reduce neonatal mortality to at least as low as 12 per 1000 live births and under-5 mortality to at least as low as 25 per 1000 live births
- SDG target 3: End the epidemics of AIDS, tuberculosis, malaria and neglected tropical diseases and combat hepatitis, water-borne diseases and other communicable diseases
- SDG target 4: Reduce by one third premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For more than 20 years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, US water treatment innovator EVOQUA.
WATER pollution accounts for 1.8 million deaths a year, according to the Lancet Commission on Pollution and Health.
Governments are responding to the harmful effects of bad water by tightening environmental regulations. But companies are under-investing in pollution prevention and instead spending on costly clean-ups.
Efficiency in water use is also increasingly critical. By 2050, manufacturing demand for water will be 400 per cent higher than 2000, the United Nations believes.
A water treatment innovator
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is US water innovator Evoqua which provides water treatment services, systems and technologies mainly to North American customers.
Pittsburgh-based Evoqua serves a broad range of markets including pharma, food & beverage, microelectronics, power and general manufacturing.
It treats influent water (freshwater used in industrial, commercial, and municipal applications) and effluent water (used water that needs treating before returning to the environment).
This allows users to withdraw less freshwater from the environment and properly treat wastewater before discharge. By enabling higher rates of water re-use by manufacturers, Evoqua helps reduce their growing demand for water.
As well as selling filtration systems, Evoqua is disrupting water treatment with an attractive business model based on outsourced water treatment.
This allows customers to focus on their core business. If all industrials outsourced their water treatment, the $US 6 billion industrial water filtration market could double to $US12 billion.
A competitive position
Evoqua has the highest or second-highest market share in the US in every segment.
It has the biggest service network in North America – a competitive advantage that gives Evoqua proximity to a greater number of customers.
The company is developing its outsourcing business further with Water One, a digital platform that enables customers to optimise performance through remote monitoring and predictive maintenance.
There is no upfront cost — clients pay by volume used.
Momentum is picking up far ahead of management expectations. Clients won from competitors account for 20 per cent of Water One sales.
Evoqua is helping solve the world’s biggest problems
Regnan identifies companies such as Evoqua using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Evoqua’s activities contribute to four SDG targets for 2030:
- SDG target 3.9: Substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination
- SDG target 6.1: Achieve universal and equitable access to safe and affordable drinking water for all
- SDG target 6.3: Improve water quality by reducing pollution, eliminating dumping and minimising release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally
- SDG target 6.4: Substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For many years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well-placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Regnan’s Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
This is the story of one of those companies, Dutch energy pioneer ALFEN.
THE RISE of renewable energy is one reason for hope in the battle against climate change.
Electric vehicles — and their gradual replacement of cars powered by internal combustion engines — is an important part of this story.
Transport accounts for 14 per cent of global greenhouse emissions. Electric vehicles also reduce pollution which triggers health problems and premature deaths.
However, the transition to renewable energy poses new challenges.
For example, the grid infrastructure finds it difficult to deal with renewable energy because most of it comes from intermittent sources.
Also, many countries lack sufficient charging points for electric vehicles.
An energy pioneer with new solutions
Regnan’s impact investment team aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the world’s growing sustainability needs.
One of those companies is Netherlands-based Alfen which has a long history of developing market-leading products based on its expertise in electricity.
The Dutch energy pioneer has a central role in the energy grid as a builder of transformer substations, energy storage systems, electric vehicle charging stations and other products and services.
The business invested early in electric vehicle charging (from 2008) and energy storage (2011), and has now built a competitive advantage in these fields.
Alfen’s transformer substations provide millions of households and companies with energy, while thousands of electric vehicles make daily use of its charging stations.
How Alfen solves energy problems
Alfen makes storage systems that solve the problem of intermittency. This allows power produced by renewable energy to be saved until electricity consumers need it.
This also makes the electricity grid more stable by reducing the unpredictability and volatility of total power generation.
It’s a huge market. Some €40 billion ($A65 billion) must be invested into the grid across Europe in coming years to keep pace with renewables expansion, according to the European Commission.
Alfen also makes charging points for electric vehicles, which will greatly boost their use.
Over the next decade Europe will need to spend €20 billion annually on public charging points to decarbonise road transport, the European Federation for Transport and the Environment estimates.
Alfen helps solve the world’s biggest problems
Regnan identifies companies such as Alfen using the 17 United Nations Sustainable Development Goals (SDGs) and their 169 underlying targets as an investment lens.
The SDGs are a 15-year plan to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere.
In 2019 the UN called for “a decade of ambitious action to deliver the goals by 2030.
“Evidence shows that investing in the SDGs makes economic sense, with estimates highlighting that achieving the SDGs could open up US$12 trillion of market opportunities and create 380 million new jobs,” the UN says.
Drawing on the SDGs and their targets, Regnan’s investment team has built a comprehensive, proprietary investment framework – the Regnan SDG Taxonomy.
Alfen’s activities are linked to two SDG targets for 2030:
- SDG target 7.2: Substantially increase the share of renewable energy in the global energy mix
- SDG target 11.2: Provide access to safe, affordable, accessible and sustainable transport systems for all
Find out more
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
For more than 20 years our pioneering analysis has changed the way investors and businesses think about value creation and their wider responsibilities to society.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
Managed by a four-person investment team based in London, the fund aims to outperform the broad global equity market over the long term by investing in companies that provide solutions for the growing, unmet sustainability needs of society and the environment.
Regnan Global Equity Impact Solutions Fund is distributed in Australia by Pendal and in the UK and Europe by J O Hambro.
Australian investors: Contact Jeremy Dean at Jeremy.Dean@Regnan.com
Information for UK, European and other international investors: www.regnan-johcm.com
Kaitlyn McRae found an affordable home through Argyle Housing which is partly funded via Regnan’s Credit Impact Trust. Pic: Argyle Housing
WHEN Kaitlyn McRae fell pregnant she didn’t think she could afford to raise her child in a nice house.
Then the 20-year-old came across Argyle Housing, which develops affordable housing for Australians on low-to-moderate incomes.
One of Australia’s most experienced Tier 1 Community Housing Providers, Argyle Housing in Kooringal is partly funded by investors in Regnan’s Credit Impact Trust.
“When I began searching for a place of my own to start my little family of two, I wasn’t sure what I was looking for until I came across a place in [western Sydney suburb] Glenfield, which was operated by Argyle Housing,” Kaitlyn says.
“It had already been leased — but they had this beautiful property in [Wagga Wagga suburb] Kooringal which was brand new.
“When I arrived, I thought to myself ‘wow’ I never would have thought moving out for the first time at the age of 20, that I would even have a chance to live somewhere as nice as this.
“Now I wake up every day loving where I live, how quiet the area is, having the perfect sized home for me and my bub who is due in January.”
Social bonds provide low-cost loans for community housing
Argyle Housing — which supports 4500 tenants in 2700 properties across NSW and the ACT — is partly funded by low-cost loans from the federal government’s affordable housing organisation, the National Housing Finance and Investment Corporation (NHFIC).
“Hearing the positive outcomes of housing young mums, makes me really proud of the work we have done in creating new affordable housing in Wagga Wagga with the support of NHFIC funding,” says Wendy Middleton, CEO of Argyle Housing.
NHFIC raises money (so far more than $1.2 billion) by issuing bonds to investors such as Regnan.
Regnan is a global fund manager specialising in investment strategies that seek attractive returns while also making a positive impact in the community.
Regnan’s Credit Impact Trust — distributed by Pendal in Australia — invests in a range of green and social bonds including those issued by NHFIC.
NHFIC offers community housing providers lower interest rates at better terms than banks, saving tens of millions of dollars — while providing attractive returns to investors.
“NHFIC is very important for financing, because it’s possibly as low a cost for borrowing you could ever achieve — and it’s performed very well,” says Wendy Hayhurst, chief executive of the Community Housing Industry Association.
“It’s performed very well because it’s got a government guarantee.”
Demand for NHFIC bonds looks set to grow because Australia will need up to a million community housing homes by 2036, Ms Hayhurst says.
To fund demand, the community housing sector will need to quadruple in size, she says.
Community Housing Providers are “the most cost-effective way of solving this problem because we don’t need 100 per cent subsidy,” she says. “We can go out and borrow to cover some of the costs of construction using NHFIC.”
That’s a win for community housing providers, Regnan investors and for Kaitlyn and her soon-to-be-born bub.
“I honestly couldn’t have asked for a more beautiful home or easy process to jump start my future,” she says.
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.
Regnan thanks Argyle Housing for their co-operation in producing this article. Argyle Housing’s vision is to deliver quality housing options and connections to the community. Find out more about Argyle Housing here.
Nasima Khatun found a career thanks to low-cost loans provided via IFC social bonds. Picture: Gazi Nafis Ahmed/IFC
EIGHT years ago Nasima Khatun (pictured, above right) started work as casual labourer at Bangladesh food and beverage producer PRAN Group.
Today the 30-year-old mother of two is a full-time line supervisor in the tomato-processing division at PRAN’s plant in Natore, 250km north-west of Dhaka.
“Before working here, I did not know that women too could work and earn a living,” Nasima says. “I have now become smarter and have learnt a lot about women’s empowerment and about life.”
Now Nasima believes in her ability to work, earn a living and contribute significantly to her family’s well-being.
More women like Nasima are finding career paths with help from Regnan and Pendal investors.
Nasima’s job is partly funded by International Finance Corporation’s social bond program, which is supported by investors in Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund.
$US3 billion from social bonds for low-cost loans
The IFC — a triple-A rated bond issuer — has raised more than $US3 billion via 40 social bonds since 2017.
The funds are lent at low rates and on good terms to organisations that focus on under-served populations in emerging markets including women and low-income communities with limited access to essential services, basic infrastructure and finance.
IFC’s 2019 bond — which was supported by Regnan and Pendal — provided a $US15 million low-cost loan to Pran Group to create new jobs while investing in food lines that source from small farmers and micro businesses.
PRAN makes high-quality, low-cost, processed and packaged food readily available to lower and middle-income earners in Bangladesh and other countries.
IFC social bonds also put students into schools, supply technology and provide micro business loans and housing loans.
Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in a range of social and green bonds that support projects which make a positive impact in communities — while also earning returns.
Regnan thanks the International Finance Corporation for their co-operation in producing this article. Find out more about the IFC’s social bond program.
About Regnan
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
For more information about Regnan Credit Impact Trust, please contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com or Regnan Chief Operating Officer Lisa Boyce at lisa.boyce@regnan.com.
About Pendal
Pendal is an independent, global investment management business focused on delivering superior returns for our clients through active management.
Pendal’s Bond, Income and Defensive Strategies team is one of the most experienced and well-regarded in Australia, managing some $22 billion invested across income, composite, pure alpha, global and Australian government strategies.