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Pictet Global Environmental Opportunities
Closed to new investors
This is a unique environmental fund which invests in global equities. The fund has identified nine environmental challenges including but not limited to; climate change, ocean acidification, biodiversity and freshwater use. All companies within the portfolio must operate 'within a safe operating space' for each of these nine areas and actively contribute to solving environmental challenges.
Our opinion
Unlike many of its peers this fund goes well beyond climate change and addresses a full range of global environmental challenges. The fund has a well designed process and we like the focus on less obvious, but no less important, environmental themes such as resource efficiency, less intensive agriculture and sustainable packaging. The managers and the process of this fund changed in 2014 and the performance since then has been excellent.
Company description
Pictet Asset Management is part of the wider Pictet Group. The company has a long history going back to 1805. It is independent, with a partnership structure and focuses on the long term. The asset management business has around £140 billion assets under management and offices around the world. Pictet prides itself on being innovative and entrepreneurial. The company launched its first thematic fund in 1995 and has been running Environmental, Social and Governance (ESG) strategies since 1997.
Fund manager
Luciano Diana joined Pictet in 2009. Before joining Pictet he spent four years working for Morgan Stanley, where he headed the clean energy sell-side research team. He holds a Laurea in Telecommunications Engineering from the University of Padua and an MBA from INSEAD. Gabriel Micheli joined Pictet in 2006. Gabriel graduated from the University of Gallen with a degree in Economics. He is a Chartered Financial Analyst (CFA) charterholder. Luciano and Gabriel have co-managed the strategy since 2014. Yi Du joined Pictet and the fund in 2018, having previously worked in a global equity research team at J.P. Morgan.
We look for leading edge but stay away from bleeding edge. We like innovative companies supported by secular growth that have a proven track record in recurring positive cash flow generation.
Gabriel MicheliFund manager
Investment process
The key differentiator of this fund is its use of the planetary boundaries framework, which was first published in Nature magazine in 2009 by Johan Rockstrom. The planetary boundaries framework identifies nine key environmental areas. These are; climate change, freshwater use, land use, ocean acidification, nitrogen and phosphorous cycle, biodiversity, ozone depletion, aerosol loading and chemical pollution. The framework specifies the respective threshold which humanity must not cross lest it cause irreversible environmental damage.
Companies which the managers can invest in must operate within the 'safe operating space' where human activities can take place safely. This immediately excludes sectors such as oil & gas, mining and most chemicals.
The managers then identify companies where a minimum of 20% of their activities are actively solving environmental challenges (the aggregate purity across the portfolio is currently around 65%). Examples include resource efficiency, environmental monitoring, pollution control, sustainable packaging, water quality, advanced transportation and alternatives to intensive agriculture.
Fundamental analysis is then undertaken on potential stocks. The team assess the quality of the business and financial attractiveness. The fund has a strong bias in favour of secular growth. However, valuations remain important and the team describes the approach as GARP (Growth at Reasonable Price).
ESG
ESG - Explicit
ESG is a primary feature of Pictet’s investment strategy on this fund, and the focus is on those ESG issues which it believes are most material to a company's financial performance, whilst giving each element of ESG investing equal importance when performing stock analysis. The fund managers will only select companies that make a substantial ‘active’ contribution to solving environmental challenges. This is measured by, amongst other things, the strategic importance of environmentally-related products and services within the company, and by the quality and amount of R&D spent in the environmental domain. That is to say, the managers select companies that provide solutions to others, rather than those that only focus on minimising their own operations.
They then screen out companies whose environmental footprint is too great, as defined by the Planetary Boundaries framework. They narrow down a global equity database of 40,000 listed companies to around 3,500. They then examine how a company’s products and services impact the nine key environmental dimensions, thus understanding whether a company’s activities lie within a safe operating space, and whether its business model is forfeited or favoured by stricter environmental constraints in the future.
Risk
The fund has a bias to growth and mid-cap stocks and can be volatile as a result. Due to its environmental mandate, the fund avoids entire sectors meaning it will, at times, perform very differently to the global stock market. Portfolio construction is built into the process when assessing every stock, which ensures the 50-holding portfolio is well diversified.
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