The return of the rational optimist

The Q2 earnings season is delivering something markets haven’t seen in a while – clarity. While we’re only a few weeks in, there have been few surprises, and that’s a good thing. The tone from companies has started to shift away from crisis management and towards resetting expectations and looking ahead. As Chloe Tang explores in her piece on the long-overdue return of rational optimism, this optimism is grounded in fundamentals not sentiment, and increasingly those fundamentals are pointing forward. 

We’re also delighted to announce that the Fund’s investment strategy has been shortlisted for three awards at Investment Week’s Sustainable Investment Awards 2025 (UK). 

• Best Engagement Fund Strategy – WHEB Sustainability Impact Fund 
• Best Impact Fund – WHEB Sustainability Impact Fund 

We recently hosted an investor update where Ted Franks and Seb Beloe from the Pengana WHEB Sustainable Impact Fund discussed the past year’s performance, addressing policy shifts, sentiment challenges, and sector headwinds, while highlighting attractive valuations, emerging opportunities, and the fund’s evolving impact strategy.

Top Holdings (alphabetically)

AstraZeneca PLC

United Kingdom

Health Care

AstraZeneca is a high-quality pharma company with a strong portfolio of commercial products that lead to better overall health outcomes for patients, who are often suffering from life-threatening or debilitating illnesses. The company's products treat issues of high unmet need, particularly in the oncology and rare disease portfolios.

Autodesk, Inc.

United States

Information Technology

Autodesk is a global leader in 3D design and engineering software and services. Its products are used by architects, engineers and designers to design, develop and manufacture and operate a vast range of products, buildings and services. Autodesk tools are a critical component in the design and operation of more resource efficient products and buildings. The product brands include Autodesk 360 cloud services, AutoCAD civil 3D and LT, 3Ds Max, Maya, and Revit.

Bureau Veritas SA

France

Industrials

Bureau Veritas is a world leader in testing, inspection and certification (TIC). Its services and solutions help ensure clients meet standards and regulations covering quality, health and safety, environmental protection and social responsibility. It covers a very wide range of sectors including: Marine & Offshore, Agri-Food & Commodities, Industry, Buildings & Infrastructure, Consumer Products and Certification.

Ecolab Inc.

United States

Materials

Ecolab sells cleaning products and services to restaurants, hotels, hospitals, food and beverage producers and other businesses. The company has a particular focus on energy and water efficiency. Ecolab has developed a range of products and services that help to reduce, and in some cases even eliminate, the use of water in a wide range of industrial applications. In turn, this helps to lower costs through a reduction of energy and water impacts.

Infineon Technologies AG

Germany

Information Technology

Infineon Technologies manufactures semiconductors and related systems. The company's products include power semiconductors, as well as microcontrollers and radio frequency products and sensors. The products are key enablers of several important end markets including electric and hybrid road vehicles, renewable power generation including wind turbines, efficient power management in industrial systems and applications and in other types of electrical infrastructure.

MSA Safety, Inc.

United States

Industrials

Founded in Pittsburgh in 1914, MSA originally stood for 'Mine Safety Appliances'. This was changed in 2014 to 'MSA Safety' to reflect the broader range of products the company has developed. Today, MSA still manufactures products such as fixed gas and flame detection systems which are used across industry. They are also a leading manufacturer of self-contained breathing apparatus and fire helmets for firefighters as well as fall protection equipment for working at height.

STERIS plc

United States

Health Care

Steris provides a variety of products and services to the healthcare industry including specifically to hospitals, medical device manufacturers, pharmaceutical and biotechnology businesses as well as for food safety and industrial markets. The company's main areas of activity are in providing hygiene, sterilisation and anti-microbial treatment services to these end markets in order to ensure a safe and hygienic operating environment.

TE Connectivity plc

United States

Information Technology

TE Connectivity is a US-based manufacturer of electronic components and wireless systems. The company's main market is the automotive industry where its products are used to improve safety and fuel efficiency through increased levels of automation and electrification. The company does also sell products into industrial and telecommunications markets where they are often used in applications to help improve energy efficiency and safety and other types of electrical infrastructure.

Trimble Inc.

United States

Information Technology

Trimble is the leading provider of location-based solutions which contribute to efficiency and productivity improvements. It operates predominantly in the construction, transport, and agriculture end-markets, where we expect the company to benefit from increasing demand for efficiency improvements. The company is listed in the US but derives around 50% of its sales from countries outside the US.

Xylem Inc.

United States

Industrials

Xylem manufactures a wide range of products and provides services to the water industry. The company's water infrastructure business provides a range of pumps, filtration and testing and treatment equipment to water utilities. The company also supplies commercial, residential markets with water and wastewater systems, and provides measurement and control solutions. Xylem's strategy is characterised by the application of intelligent technology to improve water efficiency, in products such as smart meters and intelligent monitoring equipment.

Market Review  

July was another positive month for global equities. After the cessation of hostilities between Israel and Iran, focus returned to financial markets. With economic data still moderately supportive and the Trump administration pushing vocally for cuts in US interest rates, markets were buoyant. 

This positive mood was seen in further strength in a number of large US-listed technology companies, led by Nvidia, and in other areas which are often associated with exuberance, such as meme stocks and cryptocurrency.   

As described in last month’s commentary, the start of the month saw the signing into US law of the “One Big Beautiful Bill”, which contained many measures viewed as unhelpful for sustainability. Some of those headwinds persisted into July, but market expectations are now so low that these measures have less power to shock. This was evident in the trade deal signed between the EU and the US at the end of the month, which included a commitment for the EU to buy so much fossil fuel from the US that it appears to threaten the bloc’s Green Deal. However, the deal is sufficiently vague that this threat seems unlikely.   

Around the same time, the US Department of Energy issued a report authored by some noted climate sceptics, rejecting the broad scientific consensus on climate change. It was described by one climate researcher as “an undergraduate exercise in misrepresenting climate science”. The report provides some of the pretext for moves by the US Environmental Protection Agency to repeal an important 2009 ruling that greenhouse gases endanger public health and welfare, which underpins much of climate regulation in the US. 

Meanwhile, health stocks continued to struggle in the face of other policy moves by the US administration. During the month Vinay Prasad, the newly appointed top vaccine official at the US Food and Drug Administration “resigned”. He was apparently insufficiently sceptical of vaccines. Separately, President Trump continued to push for radical changes to drug pricing, which would have an especially challenging impact on research.  

Fund Review  

The Fund rose broadly in line with the global equity market in the month.  

Despite the headlines above, the Health theme was the single largest positive contributor, followed by the Sustainable Transport theme. 

In the Health theme, the Q2 reporting season gave companies a chance to counter the negative sentiment that had weighed on them in recent months. In particular, our companies in the drug discovery industry, such as Thermo Fisher Scientific, AstraZeneca, ICON, Danaher and Lonza, all delivered results that were much better-than-feared and rose strongly as a result. Commentary from those companies suggested that there were still headwinds in business confidence in the sector as a result of the US policy noise, but that they consider these risks to be manageable. 

The Sustainable Transport theme was lifted by strong performance from TE Connectivity.  After several quarters of strong growth in its industrial segment, the latest results showed improvement in the transportation division, which has been struggling more recently. Strong margins further supported the share price. 

The weakest and only negatively contributing theme in the month was Education, where our only holding, Grand Canyon Education, fell on very little news. 

Outlook  

As in June, July was another month in which moves by the Trump administration dominated US headlines. We have previously noted that we continue to expect the frequency and scope of these policy announcements to follow the customary trajectory of presidential terms (including Trump’s first), likely easing after the northern summer. 

Despite the persistent negative headlines for sustainability, our portfolio companies are demonstrating the resilience of their business models and the underlying strength of demand for their products. Second-quarter results from several of our Health holdings provided a clear example, with strong performances despite the heavy sentiment against the sector in preceding months. 

In the meantime, the stock prices of these companies continue to reflect a historically negative view of their future prospects. We expect sentiment to slowly turn, and for the opportunity to become increasingly clear from here. 

The return of the rational optimist 

By Chloe Tang 

After two years of volatility, Q2 earnings reports are delivering something markets haven’t seen in a while: clarity. 

While we’re only a few weeks into earning season, there have been few surprises, and that’s a good thing. The tone from companies has shifted away from crisis management. It’s now about resetting expectations and looking ahead. 

In short, we’re beginning to see the long-overdue return of rational optimism. 

Crucially, this optimism isn’t based on sentiment. It’s grounded in fundamentals, and increasingly those fundamentals are pointing forward. 

From paralysis to planning 

For much of the post-pandemic era, markets were caught in a holding pattern. Businesses focused on navigating short-term pressures. Inflation, geopolitical instability, and inconsistent policymaking made long-term planning exceptionally difficult. 

That’s now beginning to change. 

The passage of Trump’s ‘One Big Beautiful Bill Act’ hasn’t exactly enthused the sustainability space. The bill is far from climate-friendly, with a strong tilt towards extended tax cuts and a sharp pullback in healthcare and clean energy support, most notably a USD $930 bn1 reduction in Medicaid over the next decade and a rollback of EV incentives. 

Figure 1: Key items in Trump’s One Big Beautiful Bill²

In spite of this, its arrival has brought a degree of relief.

For months, uncertainty around the scope and direction of fiscal policy kept businesses in a defensive crouch. While many view the bill’s content as regressive, it has at least removed the element of surprise. Clearer budget trajectories and legislative priorities means companies can start to plan with greater confidence again.

Stabilisation before acceleration

Few sectors felt the post-pandemic whiplash harder than the life science tool manufacturers, being suppliers of critical instruments used in biotech research and diagnostics. As my colleague Claire Jervis recently highlighted, the landscape has been challenging: delayed biotech funding, cautious pharma pipelines, and significant budget volatility all weighed heavily on demand.

The narrative may now be shifting.

Thermo Fisher, the world’s largest provider of scientific instrumentation, saw its stock rise 18%³ during the week it reported. Beyond the solid report, the key takeaway was management’s revised growth guidance:⁴ 3-6% core growth in 2026/27 and 7%+ beyond. While this is lower than previous 7-9% targets, the market viewed the announcement positively as a realistic reset given the fundamental drivers in the industry.

ICON, a leading provider of outsourced clinical trials, also offered early signs of recovery. As my colleague Ben Kluftinger previously outlined, the company faced challenges from delayed project commitments, due to biotech funding gaps and cautious pharma R&D spending. In Q2, however, there were clear signs of stabilisation: project wins were up 11%⁵ from Q1, biotech bookings exceeded expectations, and long-term oncology partnerships regained momentum. While management still offered a cautious tone, the results suggest that the worst may be behind them. ICON’s stock rose 30%⁶ in the week of its report.

Clean energy, too, is showing resilience. First Solar, a key player in US solar manufacturing, faced significant uncertainty as the 45X manufacturing credit came under threat from proposed subsidy rollbacks. Encouragingly, policy shifts now appear less immediate and slower-moving than initially feared. Q2 results helped ease some of these concerns. Bookings remained strong, pricing held firm, and demand showed no signs of slowing. While policy risks remain, clearer direction on subsidies is allowing both the company and its customers to plan with more confidence.

Together, these developments show that companies are no longer operating in the dark, with early signs of a measured and long overdue sustainable turnaround.

A clear valuation discount

What makes this moment particularly compelling for long-term investors is the growing disconnect between improving fundamentals and valuations.

Many high-quality businesses with long-term growth prospects, especially those aligned with sustainability, are trading at steep discounts. The forward price-to-earnings ratio of the portfolio is now well below its 10-year average and at the lowest level in a decade.

These businesses remain underappreciated, largely due to the lingering volatility of 2023/24. As fundamentals improve and political noise settles, this discount looks less like caution and more like mispricing.

Figure 2: Portfolio forward P/E ratio, relative to local markets, rebased⁷

The bigger picture: From fog to focus

The landscape is still mixed, but it’s no longer quite as chaotic. The market is transitioning from reaction to recalibration. This isn’t a moment for chasing momentum. It’s about identifying the businesses that are quietly getting back on track.

Life science tools are resetting. Clinical Research Organisations (CROs) are stabilising. Clean energy, while politically pressured, is finding its footing again.

The fog is lifting. And in this environment, visibility might be the most valuable asset of all.

¹ BBC https://www.bbc.co.uk/news/articles/c0eqpz23l9jo
² Congressional Budget Office estimates; BBC https://www.bbc.co.uk/news/articles/c0eqpz23l9jo ; ABC News
³ FactSet as of 25th July 2025
⁴ Thermo Fisher Q2 2025 Results: https://ir.thermofisher.com/investors/news-events/news/news-details/2025/Thermo-Fisher-Scientific-Reports-Second-Quarter-2025-Results/
⁵ ICON Q2 2025 Results: https://www.iconplc.com/news-events/press-releases/icon-reports-second-quarter-2025-results
⁶ FactSet as of 25th July 2025
⁷ Mean ratio of price to next twelve months’ earnings by analyst consensus, FP WHEB Sustainability Impact Fund, excluding distortions from meaningless or negative denominators in five cases: FirstSolar, Advanced Drainage Systems, Vestas, Silicon Labs, and Autodesk. Source: Factset as at 31/07/2025.