ESTea #17 02/09/21
Spotlight on: Triodos Pioneer Impact Fund
Triodos have, by far, the clearest commitment to carbon-neutral and ethical investing of any major fund brand. Almost certainly they launched the first ‘Green’ fund back in 1990, only ten years after they were founded and decades before the rest of the market.
Unusually, Triodos ethical approach is not confined to one ‘ESG’ area of the business - instead, even their retail current accounts only invest in ESG products and the current account card is made from renewable plant-based material. I don’t know how many polar bears that’s going to save - but it’s pretty cool if you ask me.
The Triodos Pioneer Impact Fund (TPIF), run by Dirk Hoozemans for the past 4 years, may not have outperformed their benchmark but returns above 20% in both 2019 and 2020 demonstrates the strength of the ESG investment theses in general.
TPIF specialises in small and mid-cap equities which fit well with their seven ‘sustainability transition themes’. Importantly, we’re seeing this idea of ‘transition’ over pure ‘sustainable’. The difference being that TPIF may be investing in equities with higher carbon foot prints but only as part of their transition to low carbon - whereas a purely ‘sustainable’ fund will typically only invest in companies which are already low carbon.
As you might expect, the performance of their underlying equities has been mixed over the past 24 years but their sectoral and geographic diversity has kept the fund firmly in the black.
Some extremely successful investments stand out, in particular their bet on Staumann Holding AG. - a Swiss company manufacturing and designing dental implants mostly in the European market.
Staumann’s earnings quadrupled in the last 12 months with a very strong balance sheet - leading to their share price doubly in the same period. The orthodontic market has been awash with innovation and TPIF have astutely capitalised on this.
When, in a recent recent interview , Dirk Hoozeman was asked what their greatest strength was gave a remarkably traditional answer for such a radical fund.
We do not track an index but construct the portfolio bottom-up. As a result, we diverge considerably from the benchmark. Around 40% of the portfolio is invested in the US, which has a weight of around 60% in the benchmark. We invest almost 20% of our assets in Japan, compared with 10% for the benchmark.
An answer like this would be expected from a traditional fund but coming from Hoozeman it almost feels too normal.
Having spoken to a number of other sustainable funds who have similarly impressive in their ethical commitment, it seems that many suffer from investor concern that they’re not completely a ‘proper fund’. Investors will listen to a presentation from the fund manager about all the great work they do and respond ‘this is all very nice, but are you a proper fund?’. Meaning - will you make money and be uncorrelated from the market?
That Hoozeman would give this answer - to his own friendly PR team as well, implies to me that TPIF feels secure enough in their ethical credentials that they can afford to address investor concerns about performance. While this may seem perverse, in fact it’s a very positive signal.