13 Questions for Impax’s Jon Forster

In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they’d never buy.

This time our interviewee is Jon Forster, Lead Portfolio Manager of the Morningstar 5-star rated Impax Environmental Markets Trust (IEM)

Which Sector Shows The Biggest Promise in 2022?

We’ve found some good opportunities in solar energy. Share prices had been weak during the market downturn, reflecting regulatory uncertainty in the US, which we think is overdone. Solar is also a key beneficiary of the “RepowerEU” plan to reduce Europe’s dependence on Russian fossil fuels.

What’s The Biggest Economic Risk Today?

Recession risk, driven either by the escalation of the Russia/Ukraine conflict disrupting the gas supply in Europe, or by the timing and scale of interest rate rises implemented to tame inflation. Other inflation drivers have included supply chain constraints and the effect of the Russia/Ukraine conflict on energy and food costs. It’s tough to achieve a “soft landing” under these conditions.

Describe Your Investment Strategy

Investing globally in pure-play growth companies operating in a wide range of environmental markets, including New Energy, Water, Clean and Efficient Transport, Circular Economy, Sustainable Food and Smart Environment.

We have a large universe of 1,300 stocks to pick from. Our strategy offers a well-diversified portfolio of approximately 60 holdings across environmental markets and regions, with a balance of cyclical and defensive exposures and exciting growth stories.

The strategy is focused on “growth” and “quality” with less exposure to value (no financials or energy). The current year rotation out of quality/growth into value has led to significant de-rating of the portfolio, whereas earnings delivery has remained strong overall especially given inflationary/supply chain challenges.

Which Famous Investor Do You Admire?

I would probably say Terry Smith for his fundamentals-driven, rigorous investment process and his focus on free cashflow and consistent approach.

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Name Your Favorite “Forever Stock”

Nothing is “forever” and our investment process will drive sell discipline if we believe our bull case scenario is already priced in. But, in terms of a name, one with a huge market opportunity ahead of it, with strong management, market position, business model and strategy, I’d say Nibe – a Stockholm-listed leading player in heat pumps, which have a critical role to play in decarbonising heating and are especially relevant given the Russia/Ukraine conflict. Owned for 15 years with one management team throughout, they have a strong track record of organic and inorganic growth, tested in good and bad markets. They’re not a cheap name but have de-rated significantly in current market conditions.

What Would You Never Invest In?

We shy away from business models that are reliant on any particular commodity price. For example, I looked at a lot of lithium mining opportunities but shied away from investing as I concluded (i) I know little about mining and felt unable to have a strong and informed view on a given resource, (ii) I have no confidence in what the lithium price will be one, three, or 10 years from now. This made it impossible to value opportunities and have conviction in this area, so in relation to electric vehicles, we have focussed elsewhere, particularly on the power electronics and other critical components in the supply chain.

Growth or Value?

IEM is mainly a “growth” and “quality” proposition. It’s hard to say when the current rotation into “value” will end, but we choose to maintain our focus on more expensive high-quality businesses as they tend to be best positioned to navigate the multitude of supply chain and inflationary challenges whilst in an environment of slow global growth. Ultimately, IEM is about capturing the long-term superior growth of environmental markets vs. the global economy, which comes from being solution providers to some of the world’s most pressing challenges.

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House or Pension?

We recently moved and are in the middle of an epic refurbishment job on our new house. We love a good “project”, and my wife is very creative and practical, which makes it a lot of fun. Having said that, this is my third and maybe final “project”. But I’m also a big believer in savings and pensions and in the snowballing impact of cumulative returns.

What Are Your Thoughts on Crypto?

I am fully consumed staying on top of environmental markets, but struggle to understand the underlying value of cryptocurrencies. I don’t know enough to make the call, brilliant or bad, but I don’t understand them well enough so would never invest.

What Can Be Done to Increase Diversity in Fund Management?

More outreach to schools and colleges to get people from diverse backgrounds interested. You need more applicants to increase diversity. We have also worked on offering summer internships with a focus on diversity to provide exposure and opportunity to these groups. We are excited about diversity as we firmly believe that diverse teams think differently and make better decisions.

Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?

At Impax we have focused a lot on engaging with companies on physical climate risks. Flooding, droughts, rising sea levels and extreme weather events are posing increased risks not only for companies but for investors and the global economy. Where a company operates its key facilities is a major factor in its exposure to physical risks. For example, we engaged with US company, Graphic Packaging to share the precise location data of their facilities so we could analyze their physical climate risks. This enabled us and the company to understand these risks, including water stress, sourcing of wood fiber and biodiversity impacts. It resulted in improved senior-level oversight of sustainability, with ongoing engagement to expand this further along the supply chain.

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What’s The Best Bit of Advice You’ve Ever Been Given?

“You are not your performance, neither good nor bad”. It’s important to maintain some distance from your fund performance numbers as they impede your ability to make good investment decisions and also lead to unhealthy highs and lows, depending on market conditions.

What Would You Be if You Weren’t a Fund Manager?

I am a keen proponent of alternative and complementary medicine and like the idea of ​​helping people directly. In another life, I might have been a practitioner – perhaps of homeopathy or osteopathy.


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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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