The Armchair Trader is going to analyse the Investment Trust sector in a different way from how we have in the past. Traditionally, we have focussed on one discrete fund in a sector in our weekly Investment Trust review in a ‘bottom-up’ review. For now, we’re going to approach the sector from a ‘top-down’ perspective and review a sector as a whole, concentrating on a range of funds.
First under review will be the Association of Investment Companies’ Environmental Sector. Funds in the Environmental sector will quite simply “invest in the environmental sector”, according to the AIC, which is quite a broad definition.
The sector has assets under management of £1.31bn and comprises three funds, the £923m Impax Environmental Markets [LON:IEM] fund, the £124m Menhaden Resource Efficiency [LON:MHN] fund and the £46.7m Jupiter Green Investment Trust [LON:JGC].
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The sector’s average discount to premium (to 10th February) was -10.9%, its average gearing was 6% and average ongoing charge (ex performance fee) was 0.97%.
AIC Environmental Sector Performance:
| Fund | One Year | Five Years | Ten Years |
| Menhaden Resource Efficiency [LON:MHN] | +53.99% | +57.98% | – |
| Jupiter Green Investment Trust [LON:JGC] | +24.87% | +14.99% | +84.58% |
| Impax Environmental Markets [LON:IEM] | +5.49% | +21.13% | +185.47% |
| Sector average | +8.19% | +23.18% | – |
| Source: Association of Investment Companies (10th February 2025) | |||
Menhaden Resource Efficiency [LON:MHN]
Top performer over the last twelve months was the Menhaden Resource Efficiency fund, with a +54% return versus a sector average return of +8.2%. The fund was launched in July 2015, so would have celebrated its tenth anniversary later this year.
The big news, however, is that the fund announced on 20th December 2024 that the board has decided that it would be in the best interest of shareholders as a whole to propose an orderly realisation of the funds of the company and return the realised capital to shareholders. This decision was taken in consultation with the portfolio manager, Menhaden Capital Management and the Alternative Investments Fund Manager, Frostrow Capital and reflects feedback from a range of shareholders. Management intends to publish a circular in early 2025 in order to put the necessary resolutions to shareholders.
The fund’s objective was to generate long-term shareholder returns, predominantly in the form of capital growth, by investing in businesses and opportunities that are demonstrably delivering or benefiting significantly, from the efficient use of energy and resources, irrespective of their size, location or stage of development.
Managed by Menhaden Capital Management, leading the portfolio management is Graham Thomas, co-founder of Menhaden Capital alongside co-manager, Ben Goldsmith. Thomas and Goldmith run the fund with third manager, Luciano Suana. Thomas cut his teeth at Goldman Sachs, before stints at DB Capital partners, Standard Bank and RIT Capital Partners. Goldsmith manages Cavamont Holdings, the family office for the Goldsmith family, and co-founded the co-founded the WHEB Group.
The fund prided itself as a long-term investor, focussing on capital growth from a concentrated portfolio of firms the investment team decides are efficiently using energy and resources. The fund is sector-agnostic, was mandated to invest in listed and unlisted companies of any size in any location.
Out of this vast investment universe, the management committee narrowed the portfolio down to between 15 and 25 stocks, with their ‘best ideas’ portfolio having an asset allocation of more than 10% of the portfolio.
The fund’s three-biggest positions at the end of last year were Alphabet NASDAQ:GOOGL with 13.5% of the portfolio; Safran Industrial Emissions [EPA:SAF] with 10.6% allocation, a French aerospace and defence contractor, which is designing net zero aircraft engines, among other products; and Airbus [EPA:AIR], the French aerospace company, with 10.6%. The fund was not mandated as to the size of company it invests in, but its portfolio has a large cap bias.
Jupiter Green Investment Trust [LON:JGC]
Jupiter Green was founded in June 2006 and aims to achieve capital growth and income, both over the long term, through investment in a diverse portfolio of companies providing environmental solutions. However, like Menhaden has proposed, the fund is closing shop, announcing, also on 20th December, that it too will be winding down and returning its funds to shareholders.
The fund had a good run, under the stewardship of Jon Wallace, who also manages the Jupiter Ecology Fund and has been with Jupiter Asset Management since 2009, having spent his career in Sustainability. However, Jupiter decided to call it a day due to the widening discounts (a significant problem with funds in this sector). Management decided at an AUM of less than GBP50m the fund was ‘sub-scale’ and couldn’t achieve what the portfolio manager wanted.
The sector hasn’t been helped by the fact that eco-investments have had a bad run of form, despite most of the world’s governments and chattering classes being fixated on global warming and achieving net zero carbon emissions. Put into context, Jupiter Green returned +21.3% return over five-years to end-October, against a MSCI World Small Cap Index return of +125.2%.
As the winding up process rolls forward, shareholders have the option of exiting at what the manager calls “a modest discount” to NAV, or rolling over their shares to Wallace’s other fund, Jupiter Ecology. Incidentally, on the closure of Jupiter Green, the fund management group will only have one Investment Trust left, the £102m Rights and Issues Investment Trust LON:RIII, part of the AIC: UK Smaller Companies sector, which might be left feeling a bit lonely, and paranoid about its own future.
Impax Environmental Markets [LON:IEM]
If the Menhaden vote to wind-down is ratified, the last fund standing in the sector will be Impax Environmental Markets, which is a different proposition to its brethren. This is pure-play environmental fund in that it looks across utilities and aims to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste.
Managed by Bruce Jenkyn-Jones, Impax’s co-chief investment officer, the fund’s philosophy is based on demographic and societal change pushing demand for basic resources – water, energy, food – and the need for global infrastructural investment. The companies that manage resources well, thinks Impax, will be the most successful companies of the future, and that environmental markets will grow faster than the rest of the global economy.
Jenkyn-Jones, who has been at Impax since 1999, thinks that companies well-positioned for the transition towards a more sustainable global economy are more likely to outperform over the long-term.
He is joined on the bridge by Jon Forster who co-manages Impax’s Specialist and Climate strategies which focus on renewable energy, water, and waste support services, and Fotis Chatzimichalakis an expert on Information Technology and Industrials.
The management forsees opportunities even in climate-sceptic, pro-petroleum, President Trump’s declaration to “Drill Baby, Drill”, as they see an uptick in fracking and oil exploitation creating greater hazardous waste streams that will need treating, to the benefit of some of the fund’s portfolio holdings
The fund has a global mandate, but, at least in terms of its largest holdings, seems to have a North American bias. The portfolio had 61 positions in December, with the largest three being PTC [NYSE:PTC] the US software company with a 3.2% allocation; Trimble NASDAQ:TRMB, another American technology firm at 2.9%; and Clean Harbours NYSE:CLH the American water treatment company which had 2.7% of the fund.
Taking an investment in IEM offers exposure to companies that are developing innovative solutions to environmental challenges and it’s been in business since 2002. The mandate does have a technology bias, and technology has been one of the top performing sectors over the past few years. The biggest environmental unit trust, IEM is now the undisputed champion, given the demise of Menhaden and Jupiter Green. Impax, as a house, has decades of success in the environmental and sustainability sectors, managing mandates of nearly £40bn on this basis.
Investors interested in aligning their portfolios with environmental sustainability and seeking potential long-term capital growth may find IEM appealing. However, investors need to balance their sustainability requirements with the sustainability of the class as whole, as just in the last few months this sector has demonstrated. Also, the Impax sheen has dimmed somewhat recently with St. James Place moving the mandate of its £5.2bn sustainability fund from Impax to Schroders at the turn of the year, which damaged Impax’s share price and knocked Impax’ revenues back by around £13m.
There may be trouble ahead
The recent closures of Menhaden and Jupiter Green highlight the challenges facing the AIC: Environmental investment trust sector. While the demand for sustainable solutions remains strong, persistent discount levels and lacklustre performance relative to broader indices have made it difficult for some funds to maintain scale.
Impax Environmental Markets now stands as the last dedicated player in the sector, benefiting from its larger size, long track record, and a technology-driven approach. However, investors should carefully assess the risks of investing in a shrinking sector and consider whether sustainability-themed investments are best accessed through standalone trusts or broader equity strategies. The recent loss of a major Impax mandate suggests that even established players face headwinds, reinforcing the importance of diversification in this evolving space.
