M&G (Lux) Positive Impact Fund
5 min read 24 Jan 23
The value of a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The views expressed in this document should not be taken as a recommendation, advice or forecast.
It is important to emphasise from the outset that impact investing isn’t philanthropy. While it is true that investee companies undergo rigorous assessment to ensure they make positive environmental or social impacts, they must also be high-quality businesses with the potential to deliver good financial returns. We analyse the investment case by reviewing companies in five areas:
During this process we use a blend of field work, direct experience and internal sources, such as other fund managers and sector analysts, as well as external sources, including Credit Suisse HOLT, Morningstar, MSCI and external brokers. Potential investee companies are scored in each of the five areas, before being debated by the wider Positive Impact team. They must be approved unanimously to be added to the watchlist.
It is equally important to not overpay for good companies. This is why the team conducts scenario-based valuation work, using change analysis to understand what is built into today’s share price, and the sensitivity to change.
The team looks at the potential upside and downside risks of holding the stock, placing probabilities on these different scenarios, and allowing them to determine what they believe to be a company’s intrinsic value. The company can then be bought when there is a sufficient margin of safety between the current share price and the believed intrinsic value, compared to alternative opportunities and considering portfolio risks.
In M&G’s Impact strategies, we invest with a long time horizon, seeking companies that we would be happy to own for 10 years. These companies tend to have robust business models and strong pricing power. They are businesses which we would feel comfortable holding through economic cycles, providing resilience in challenging times and the potential for growth in rising markets.
By their nature, investee companies also often stand to benefit from multi-generational trends and opportunities. For example, the shift from fossil fuels to clean energy, and increasing demand for communications and financial services in developing communities.
M&G’s Impact strategies tend to be concentrated portfolios, usually holding fewer than 40 stocks. However, diversification remains an integral part of the investment process. Portfolio companies can be picked from across the globe, with no geographical restraints. They also operate across a variety of industries, from pharmaceuticals and renewables, to logistics and telecommunications.
Portfolio companies are split across three categories, based on how they make a positive impact. This provides additional diversification across different types and maturities of business model.
The M&G (Lux) Positive Impact Fund has shown resilience since the beginning of 2022, in what has been a challenging market for many impact funds. The below chart shows the fund’s performance against 11 competitor public equity impact funds.
Early 2022 was a tough period for the fund, against a backdrop of high growth and inflation. In this market environment, commodities and energy companies tend to outperform, and the fund holds neither. Furthermore, the fund does not hold Western banks – which tend to respond well to higher interest rates – as they do not pass our strict impact criteria.
Since Russia’s invasion of Ukraine, macroeconomic conditions have deteriorated significantly due to inflationary pressures and geopolitical uncertainties. The fund remained relatively resilient in this tough period, which we attribute to our focus on quality companies. We look for investee companies with strong pricing power and structural growth drivers, which we believe tend to be more resilient in challenging markets.
The fund’s performance has also benefited from our more balanced approach. With a focus on diversification across end markets, industries and maturities of business model, the fund has less of a bias towards high-growth companies and smaller companies, both of which have struggled in 2022.
At least 80% of the fund is invested in the shares of companies, across any sector and of any size, from anywhere in the world, including emerging markets. The fund usually holds shares in fewer than 40 companies. The fund invests in securities that meet its ESG Criteria and Impact Criteria. Norms-, sector- and/or values-based exclusions apply to investments. All companies are assessed on their investment credentials and ability to deliver positive social and/or environmental impact. At least 80% of the fund will be invested in sustainable investments: at 30% in sustainable investments with a social objective and at 30% in those with an environmental objective.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.