How we're investing in a fast changing world

Peter Michaelis, Simon Clements & Neil Brown

As Good Money Week approaches, Liontrust’s Peter Michaelis, Simon Clements and Neil Brown highlight five sustainable themes and stocks for investors.

 

Theme: Increasing waste treatment and recycling

Stock: Smurfit Kappa

 

Resources are finite, and we’re not recycling enough. The World Economic Forum estimated there were 141 million tonnes of plastic packaging waste in 2015, just 14 per cent of which was recycled. We need to increase the amount of waste recycled, and design products with “end of life” in mind – by which we mean making them easy to break down and reuse/recycle. Companies that can process and recycle waste are generally set to benefit from this trend.

 

Paper and packaging companies are caught at the centre of the waste debate and we see strong financial and environmental opportunities in those that can do it sustainably. Three-quarters of the fibres that FTSE 100 paper packing company Smurfit Kappa uses are from recycled sources, and the remaining 25 per cent come directly from its own plantations and third-party suppliers. We see value in Smurfit’s responsible resource management, operational efficiency and products that help to reduce waste and resource use, as well as increasing recyclability, reusability and degradability.
  

Increasing waste treatment and recycling

Theme: Delivering healthier foods

Stock: Kerry Group

 

As interest in leading a healthy lifestyle rises globally, we have identified companies providing “reformulation” services to make food healthier – stripping out the fats, sugars and salts while maintaining the taste. These companies are a beneficiary of demand for healthier food as their customers, many of which are the big incumbent food producers, respond to changing consumer preferences. This move towards an improved diet is having a positive health impact, helping to reduce non-communicable diseases such as obesity and cardiovascular disease.

 

One of our key long-term holdings is Irish-based food technology company Kerry Group. Given consumers are demanding more from their food, manufacturers come to Kerry for its expertise in ingredients and flavourings. Kerry enables what it calls the ‘five Rs’: reduce, remove, replace, reinvent and reposition. Its “sensory scientists” work to reduce calories, remove artificial chemicals and replace them with natural alternatives. For example in carbonated soft drinks, they’ve switched sugar for botanical extracts which has both a health benefit and gives them new flavours for consumers to enjoy.  We also like Kerry because it is managed for the long term and consistently invests in research and development to maintain leadership in the food technology space.

 

Delivering healthier foods

 

Theme: Increasing electricity generation from renewable sources

Stock: Siemens Gamesa

 

Electricity generation is a major emitter of carbon dioxide. Substituting carbon-intensive fossil fuel electricity generation, especially coal, with renewable power sources reduces carbon emissions as well as providing a cost-effective means to connect people to cleaner power sources.

 

Wind turbine manufacturers such as Siemens Gamesa are well positioned to benefit from more renewables going on the grid. The company’s huge offshore wind turbines are harder for competitors to copy and compete with, meaning its margins are relatively safe.

 

  Increasing electricity generation from renewable sources 

 

Theme: Enabling innovation within the healthcare system

Stock: Thermo Fisher Scientific

 

The days of “take two and call me in the morning” will soon seem incredibly archaic. The rate of innovation within healthcare is not only an impressive scientific feat, it’s changing lives.

 

While DNA sequencing used to cost billions, it is now possible to get this process done for less than $1,000. This opens up a huge range of diagnostic interventions and Thermo Fisher Scientific is well exposed to this trend. This US company sells medical technology products across areas as diverse as mass spectronomy, allergy/auto immunity testing, food safety testing kits, cancer testing diagnostics and post-transplant tissue testing. Healthcare needs to become more efficient and a key part of that lies in early diagnosis of diseases based on genetic make-up.

 

  Enabling innovation within the healthcare system 

 

Theme: Improving the efficiency of energy use

Stock: Daikin

 

We see many ways of making energy cheaper by reducing waste, as well as emissions, through more efficient usage. This cuts across many areas of the economy and includes building insulation, efficient lighting, energy efficient climate control, travel and industrial processes.

 

One of our longest-standing investments in Japan is air conditioner manufacturer Daikin – a global leader in the space. Many would point to air-conditioning as a key source of energy usage and therefore of carbon emissions and, while this is undoubtedly true, Daikin’s products can cut both drastically. Daikin has a number of technologies that cut energy usage by more than 50 per cent compared with traditional products. The ductless system is the key innovation, which pushes refrigerant rather than cold air around a building, ensuring significantly less energy is used.

 

Improving the efficiency of energy use

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

 

Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.

 

Disclaimer

 

This content should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, September 27, 2018, 2:28 PM