Sustainable infrastructure and impact investing at the heart of M&G Investments: Interview with Alex Araujo and John William Olsen

Can you explain the two investment styles you follow?

Alex Araujo: I seek to invest in listed companies that have a social and environmental dimension, in the infrastructure sector. There is a lot of activity in this area, to give just an example, President Biden’s plan to spend US$1.9 trillion renovating America’s ageing infrastructure, with a sustainability prism like our own.

John William Olsen: I seek to invest in what I assess to be quality, financially balanced companies that have a positive impact on society and the environment. The companies we select seek to provide solutions to issues that we have identified, including social inclusion, health, education, the environment and the circular economy.

What are your selection criteria?

Alex Araujo: In the infrastructure sector, our targets include companies active in the construction of schools, social facilities or hospitals. They can also be companies responsible for the development and maintenance of drinking water networks, not to mention digital infrastructure (data centres, network antennas, fibre optics), which enable people to connect with each other. These infrastructure businesses have proved to be essential to getting through the period of isolation and confinement that we have experienced during the COVID-19 pandemic.

John William Olsen: With impact investing, we first analyse the core business of the companies, which must address in a very concrete way the issues mentioned above. These are often pioneering companies, or leaders in their market. We seek to select those companies that we think have the best chance of outperforming over the next 10 years. We eliminate companies that we think have not yet reached their financial breakeven point.

Do you feel that because you are investing in 'sustainable' businesses they have a growth bias and therefore face a bubble risk?

Alex Araujo: As far as infrastructure is concerned, we see high valuations for pure players in clean energy, specialising in wind or solar power. These are fine companies with excellent prospects, in our view, and have public support, which we think justifies their price, but it is clear to us that diversification is essential in these areas. For this reason, we also select companies that focus on their own energy transition away from fossil fuels. We particularly like companies that use or are active in the fields of biofuels or hydrogen.

John William Olsen: If you look at the market as a whole, this growth bias is probably true. However, we believe by taking a multi-theme approach, we can invest in a variety of sectors, both growth and value. I think the bubble risk is mainly in the big technology companies. We don't invest in these stocks because their activity is not oriented towards a "positive impact" logic, in the "social" or "environmental" sense that interests us.

Is the return of inflation a threat to your investment style?

Alex Araujo: I see the return of inflation as a positive. Investing in the future means investing in a world of growth, which naturally produces inflation. So inflation is not a threat, in my view, but the consequence of strong activity that brings new opportunities. Let us not forget that it also affects the value of real assets and the way they can be used. I think the current fears about inflation are typical of the uncertain world in which we live, where opinions are fickle and contradictory. Investing in real assets from a sustainable perspective offers an answer to these fears, in my view, by providing long-term visibility while helping to finance a better world.

John William Olsen: Rising prices are mainly driven by commodities and energy in our view, which are areas of the market we do not invest in. Our aim is to select forward-looking companies that we believe can deliver value over the long term. This allows us to be less dependent on short-term macroeconomic issues.

It is important to note that:

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The value and income from 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. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.

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The views expressed in this document should not be taken as a recommendation, advice or forecast.