February Report

Market Review

The MSCI World Index fell -0.4% in February, dragged down by poor performance of the US and Asia.

US stocks struggled during the month due to weak economic data and concerns that President Trump’s tariffs will negatively impact the world’s largest economy. Against this backdrop, Treasury yields fell, with global bonds acting as diversifiers against equity losses.

Meanwhile, despite persistent growth worries in Europe and the UK, the region’s stocks continued to outperform their US counterparts over the month. Financials maintained their strong run amid monetary easing cycles while defence stocks benefited from a renewed focus on domestic production.

In the UK, inflation’s services component remained stubborn and rose, but early in February, the Bank of England eased the main policy rate by a quarter of one percent, weighing growth concerns alongside the inflation outlook.

In the global market, Consumer Staples was the strongest sector over the month, followed by Real Estate and Energy. Consumer Discretionary and Communication Services were the main laggards by some margin.

Fund Review

The Fund delivered negative performance over the month of -1.2%.

The weakest performer was First Solar (Cleaner Energy), as political uncertainty around the Inflation Reduction Act and nervousness ahead of the company’s FY’24 results pressured the stock. Arcadis (Environmental Services) also detracted from the uncertain political environment, as the company is exposed to government infrastructure spending.

On the other side of the ledger, Daifuku (Resource Efficiency) was the top performer, with the company releasing its full-year guidance during February, meeting its Operating Margin target 3 years ahead of schedule. Gerresheimer (Health) also performed well, with rumours of a takeover offer increasing the market’s confidence in Gerresheimer’s potential undervaluation at the current share price. Additionally, positive news from client Novo Nordisk was encouraging for the company’s future growth prospects. Infineon (Sustainable Transport) delivered beat-and-raise results driven by strong demand for electric vehicles in China.

Overall, the Health and Resource Efficiency themes were the main detractors from return, while Sustainable Transport and Water Management contributed positively.

Outlook

While the last few years have been difficult for WHEB and impact strategies in general, we believe we have good reasons to be optimistic about the future.

Sentiment for impact investing is very low, which can be seen in the portfolio valuation relative to local markets, such as Price to Earnings or Price to Book Value ratios. Markets usually turn when the last marginal seller has left.

We are confident that most of the underperforming stocks in our portfolio have been hit by the market’s focus on short-term issues while the fundamental, longer-term investment case is sound.

We have conviction that an increasing number of sustainability markets will grow independently of the political environment. Although President Trump does stand quite explicitly against much of the transition to a more sustainable economy, the polarisation of US politics is galvanising those that continue to believe in the strong logical case for sustainability. We anticipate a slow reversal of the current negative momentum from here.

We therefore remain excited about the future and convinced that the opportunity has never been greater.