Reopening economies, ramping vaccination programmes, and rising consumer demand boosted confidence in April. Global markets, represented by our benchmark MSCI World Index, rose 3.2% in the month on the back of these positive factors. Against this backdrop, the Fund rose 2.9%, facing headwinds from strong performances in sectors unrelated to sustainability including financials, communication services and IT.

In this month’s commentary, Claire Jervis analyses the causes behind the ‘worst IPO in history’ and whether, despite being marred by ESG issues, Deliveroo is truly a disruptive company. In contrast, we present our holding in Hellofresh, a market leader in delivering fresh and healthy meals while also minimising food waste, reducing supply chain greenhouse gas emissions, and promoting healthy habits.

We are very excited to welcome Jayne Sutcliffe as WHEB Asset Management’s new Non-Executive Chair, the full press release can be found HERE.

Finally, WHEB is delighted to announce that Victoria MacLean will be joining our growing team in July. Victoria will join as an Associate Portfolio Manager and brings a wealth of experience and a passion for impact investing and ESG. With Victoria on board, WHEB’s investment team will have six members managing our pioneering impact strategy.

We recently hosted a webinar covering The Charge of Impact Investing as part of the Pengana webinar series. The recording is available below, as well as hosted with all the other webinars on www.pengana.com. Financial planners may also complete a short questionnaire available HERE for CPD points.

Top Holdings (alphabetically)

A.O. Smith United States Industrials

Agilent Technologies United States Health Care

Ansys United States Information Technology

CSL Australia Health Care

Danaher United States Health Care

Icon Ireland Health Care

Intertek Group United Kingdom Industrials

Linde United Kingdom Materials

Orpea France Health Care

Thermo Fisher Scientific United States Health Care

Reopening economies, ramping vaccination programmes, and rising consumer demand boosted confidence in April. Global markets, represented by our benchmark MSCI World Index, rose 3.2% in the month on the back of these positive factors.

In terms of relative performance, the Fund faced headwinds from strong performances in sectors unrelated to sustainability. For example, the Financials and Communication Services sectors, and the very large technology companies including Apple and Microsoft, performed well. Against this backdrop, the Fund slightly underperformed the benchmark this month, rising 2.9%.

Within the Fund, our Health and Wellbeing themes provided the strongest contributions to performance. They were offset by weaker performances from our Education and Cleaner Energy themes.

Our Health theme was the best performer in April. ICON and Danaher were the major performance contributors to the theme. ICON is a leading clinical research organisation. Danaher is a global life sciences and technology company. Both companies benefitted from their role in developing COVID vaccines and therapeutic treatments. In particular, ICON was involved in the clinical trials of the Pfizer and BioNTech vaccines, which saw significant demand for its services in the last quarter. Despite the likelihood this activity will slow from here, both companies also expect a gradual recovery of their non-COVID businesses over the rest of the year.

Wellbeing was also an outperforming theme this month driven by a recovery in the share price of Orpea, a leading operator of nursing homes for the elderly, and post-acute and psychiatric clinics. It has performed well during the pandemic and had achieved an 80% vaccination rate for its residents by mid-March 2021 with more than 90% of its nursing homes being COVID free. In light of the pandemic, the company has further strengthened its staff training and employee health and safety. Sonova was another performance contributor to the theme. It specialises in hearing care solutions which include hearing aids and cochlear implants. Demand for this vital equipment has recovered strongly from the depths of the lockdown.

Our Education theme underperformed this month, driven by the poor performance of Strategic Education. It focuses on offering graduate and postgraduate degree courses for adults. The company owns physical campuses but predominantly delivers courses through online platforms. It targets working adults and ethnic minorities. The share price has suffered recently as its main student demographic was hit hard by the pandemic.

Our Cleaner Energy theme was also weak, having been the strongest performer last month. Both TPI Composites and Vestas in the theme saw their share price fall despite little new information. We remain bullish about our renewable holdings over the long term, supported by the tremendous demand for renewable energy across the world.

April included the start of the “earnings season” for the first quarter of the year. So far we have seen lacklustre stock price reactions to strong fundamental results. We believe this reflects investors’ heightened expectations and worries over peak growth. Inflation is another investor concern, which has become something of a buzzword on recent earnings calls.

Regardless of these macroeconomic and stylistic crosswinds, the more dominant sustainability drivers will continue to drive the long-term performance of this strategy.

Deliveroo – bad timing, bad ESG, or just a bad idea?

Deliveroo has been dubbed London’s ‘worst IPO in history’ after its shares fell 26% in the first day of trading, which was the last day in March. Some say it was just bad timing as investors don’t like stocks that IPO at the end of the quarter. Others point to the fact that Deliveroo was operating with some seriously problematic labour practices: Deliveroo’s ‘gig economy’ drivers and cyclists in its largest market, the UK, reportedly make less than minimum wage and in some cases as little as £2/hour. Both of these factors likely contributed to the troubled IPO. I think there is something else, far more basic, going on here though – I think Deliveroo just isn’t a very exciting idea.

People love tech stocks because they’re disruptive. Through their proprietary algorithms and Silicon Valley mindset they actively change the way we live in, and interact with, the world. How disruptive is Deliveroo, really? I’m fairly sure we’ve been ordering takeout from our sofas for decades. OK, so now the menus are all kept in one place and we can order from a screen rather than picking up the phone and talking to someone. Is this really the level of disruption we’re looking for in a racy tech stock? If they had the first-mover advantage, and the scale, it might be more exciting, but Deliveroo is competing with Just-Eat, Grubhub, DoorDash, and Uber Eats, all of whom are generating the same if not more in sales. Add environmental, social, and governance (“ESG”) failures into the equation and it’s not hard to see why the IPO wasn’t met with more enthusiasm.

So what does real tech disruption in the food market look like? We think our holding, HelloFresh, is a prime example. Every week you select three to five meals from an app on your phone then HelloFresh portion out the ingredients, box it up, throw in some recipe cards, and pop it in the delivery van. Sure, you’re still ordering food from your phone to your front door, but this is a very different business proposition. For a start, HelloFresh customers enjoy fresh, home-cooked meals that have been developed by in-house chefs with convenience and nutritional balance in mind. That’s a genuinely new direction from the ever-more-unhealthy traditional takeaway market.

But the innovation is even more marked if you look into the story behind each fresh box. By getting users to order their meals in advance, HelloFresh is able to forecast what quantity of each ingredient they’ll need with a high level of accuracy, and get it delivered right when they need it. They source ingredients directly from the supplier, so food goes from farm to fork while only passing through a single fulfillment centre, without food growing old on supermarket shelves or getting wasted at warehouses.

This all results in fresh, healthy meals delivered with up to 82% less food waste in their operations compared to traditional supermarkets. Then, because HelloFresh is calorie and portion controlling their meals, users are prevented from overbuying too – HelloFresh customers waste 21% less food at home than a supermarket-bought meal. HelloFresh isn’t just changing the way we eat by giving their customers easy and convenient access to fresh, balanced meals. They’re also disrupting the entire food supply chain, transforming the way we access fresh food in a way that has a huge impact on reducing food waste (which currently makes up 6% of global greenhouse gas emissions).

Like Deliveroo, HelloFresh faces fierce competition from the likes of Gousto, Blue Apron, Marley Spoon, and others; but unlike Deliveroo, HelloFresh is the largest global company in its space by a long way. This scale brings huge advantages – they can afford to offer a wider variety of recipes than competitors, they can gather more data on user habits to fine-tune their forecasts and value proposition, and their customer acquisition costs are lower just by virtue of having a huge brand.

This is genuinely fresh thinking about food, rather than just using technology to enable unhealthy habits. We know which one we would rather back.