This fund seeks to profit from what it believes is a multi-decade growth opportunity arising from the drive to protect biodiversity. This is an active multi-cap fund which has identified a number of key long-term investment themes which are required to protect biodiversity. The fund invests globally and in companies of all sizes.
Our opinion
This is an interesting new strategy run by a manager with strong experience and expertise in this space. It is a compelling long-term theme, with strong arguments, backed by a solid investment process. The fund has only recently launched so it will have to prove it can deliver results - but this fund is certainly one to watch given the scope for growth in this market.
Company description
Redwheel is a specialist, independent investment organisation that is employee-owned. The business was established in 2000 and has offices in London, Miami and Singapore. There are more than 50 dedicated investment professionals working across seven independent investment teams. They specialise in providing developed and emerging market equities, convertible bonds and income solutions. Redwheel is a registered trademark of RWC Partners Limited.
Fund manager
Amanda O’Toole is the lead portfolio manager. She joined Redwheel in April 2023 to launch and manage this fund alongside the Redwheel Clean economy fund. Prior to working at Redwheel, Amanda worked at AXA Investment Management and was a portfolio manager on their Clean Economy and Biodiversity strategy. She has also worked as an analyst at Nevsky Capital and began her career at PriceWaterhouseCoopers. Amanda holds a BA (Hons) in Economics from the University Upon Tyne and is an Associated Chartered Accountant.
Amanda is supported by co-manager Sebastian Bidault who also joined Redwheel in 2023, having previously worked as a co-portfolio manager of the Tesco Pension Global Equity fund for 7 years.
Amanda O'TooleFund manager
Investment process
Human activities are driving a depletion in biodiversity which is leading to huge environmental and financial cost. Around 25% of all species of plants and animals are currently under threat. Over one million species are at risk of extinction. More than 55% of global GDP is moderately or highly dependent on nature. Whilst climate change gets a lot of attention, the risks to biodiversity can often go under the radar. However, governments are taking action, consumers are demanding more sustainable products and regulators are incentivising many companies to measure their biodiversity footprint. This presents an opportunity to investors. The fund invests in long-term structural growth trends. There are four main investment themes in the strategy:
1. Sustainable Materials – Increased demand for sustainable infrastructure materials and energy transition materials. Examples include timber as a replacement for steel and cement. Low carbon batteries and products manufactured for re-use and recyclability.
2. Terrestrial Ecosystems – Agriculture crops and husbandry (farm to plate)
3. Aquatic Ecosystems– Aquaculture, water storage and efficiency, flood and drought protection and pollution remediation
4. Circularity & Waste Management – resource efficiency, pollution mitigation and material circularity
For each theme a ‘Solutions Framework’ maps the existing, emerging and available solutions in the market.
The process starts with a screening process. The initial screen removes some sectors like controversial weapons, coal and tobacco. It also eliminates the highest risk ESG names as defined by Sustainalytics and companies which are non-compliant with the UN Global Compact. Non-relevant sectors like real estate, financials, energy and communication services are also taken out.
The Solutions Framework, mentioned above, then highlights the existing, emerging and available solutions in the market mapped to the portfolio’s themes. The team then identifies the companies providing the solutions. This leads to a Biodiversity universe of 400 stocks. Further industry analysis reduces this to a focused universe of 200. Fundamental and ESG analysis produces a watchlist of 100 names. Valuation analysis leads to a final portfolio of 40 to 60 stocks.
ESG
ESG - Explicit
This is an Article 8 fund. It has a number of hard exclusions including companies which generate 10% or more revenue from military contracting, thermal coal extraction, thermal power generation or the distribution of tobacco. Companies which are non-compliant with the UN Global Compact, OECD Guidelines for Multinational Enterprises or UN Guiding Principles on Business and Human Rights are all excluded. Companies which produce or distribute controversial weapons are also excluded. The strategy is focused on investing solutions which minimise or mitigate biodiversity loss. ESG runs throughout every part of this funds process, with a particularly strong emphasis on the E and, as you would expect, biodiversity as a theme.
Risk
This is a highly specialised fund and is likely to behave very different to the wider market. Thematic funds such as this are potentially vulnerable to market fashions as things go in and out of favour over time. The fund has a small and mid-cap bias - although it generally does not invest much in companies with a market capitalisation below $1bn – these companies are likely to be higher risk than their larger peers. The fund will typically have a large overweight to industrials and materials. Real Estate, Financials and energy are all a zero weight, meaning it may underperform should these segments produce strong returns.
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