Lower income households disproportionately affected by food insecurity

With Australia’s inflation rate now sitting at 5.1%, every supermarket aisle has seen price rises, and many staples including lettuce and broccoli have more than doubled in price over the last two years. Similar headlines can be seen throughout the world. This is putting immense pressure on low-income families, who are forced to spend a much larger proportion of their budget on food. Senior Analyst Claire Jervis takes a look at some of our portfolio holdings that are contributing to long term solutions for improving and increasing global food production.

We are pleased to announce that, in New Zealand, the Pengana WHEB Sustainable Impact Fund has won Mindful Money’s “Best Ethical Overseas Fund”. The judges were impressed by the thought leadership that Fund has shown and recognised that it looks beyond investments in companies that create positive impact to also seek out companies that can catalyse change. The judges also commended the WHEB fund on its strong analytical approach to engagement and voting, along with excellent communications to financial advisers and clients.

In other news, WHEB has been named a 2022 Best for the World™ B Corp™ in recognition of its exceptional positive impact on its Customers – for a fifth time. We’re thrilled to have been recognised again. More details can be found here.

Top Holdings (alphabetically)

Ansys

United States

Information Technology

Ansys is a market leader in multiphysics engineering simulation software for product design and optimisation. The company follows a strategy of Pervasive Engineering Simulation to enable innovation. Its software accelerates product time to market, improves engineering and optimises product quality and safety for a variety of products including fuel efficient cars and planes, wind turbines as well as medical technology and consumer products.

CSL

Australia

Health Care

CSL develops medical products for serious and life-threatening diseases. Its core business is as a provider of human blood plasma-derived products to treat bleeding disorders, rare and serious infections and autoimmune diseases. CSL also manufactures vaccines and related products, including for flu and cervical cancer, as well as other products that speed up recovery times for patients that have undergone heart surgery, organ transplants and burns. The company provides these solutions across North America, Europe, Asia, Australia as well as other parts of the world.

Daifuku

Japan

Industrials

Daifuku is a global material handling systems manufacturer. The company supplies global storage systems, conveyors and automatic sorters. These products support the automation of warehousing and manufacturing helping to reduce energy and resource use in these activities. Daifuku also provides an integrated approach from consulting to engineering, design, manufacturing, sales, installation, and after-sales services for automation.

Danaher

United States

Health Care

Danaher is a diversified business that designs, manufactures and sells laboratory equipment and consumables to clinical and medical laboratories including microscopes, analytical software and imaging and molecular devices. These tools are used in the development of new drugs and for diagnosing critically ill patients. In addition, the company also designs, manufactures and sells equipment to test and treat water (incl. UV water treatment systems). Overall, Danaher's products offer improved efficiency and reliability.

Ecolab

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.

Globus Medical Inc

United States

Health Care

Globus Medical is a best-in-class spinal medical technology company headquartered in Pennsylvania, US. It has a large portfolio of solutions to promote healing in patients with musculoskeletal disorders. A newer, fast growing segment called "Enabling Technologies" centres around ExcelsiusGPS, the world's first robotic navigation platform which supports surgeons in spinal operations. The company was founded in 2003.

Icon

United States

Health Care

ICON is a clinical research organisation (CRO) which provides outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. The company's mission is to accelerate the development of drugs and devices that save lives and improve the quality of life. ICON specialises in the strategic development, management and analysis of programmes to support all stages of the of the clinical development process.

Linde

United States

Materials

Linde Plc produces and distributes industrial gases. The company operates globally supplying oxygen, hydrogen and other gases to a very wide range of downstream markets including into manufacturing industries, petrochemical and electronics industries. The gases are used in a variety of applications including in making manufacturing processes more efficient and in reducing harmful emissions. The company is establishing a strong presence in the green hydrogen market and also sells oxygen and other gases into the healthcare sector.

TE Connectivity

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.

Thermo Fisher Scientific

United States

Health Care

Thermo Fisher Scientific is one of the largest suppliers of analytical instrument, equipment, consumables and software for healthcare and environmental research, analysis, discovery and diagnostics. The company offers a very wide range of products and services including the equipment needed to analyse samples as well as the variety of containers and other consumables needed to handle them.

Global equity markets had another difficult month in June, as the MSCI World Index fell by 4.8%. Fears of continued inflation and supply chain disruption continued to weigh on markets. This was heightened by ongoing lockdowns in China and geopolitical tensions.

The Fund underperformed the index this month, returning -5.8%. While we saw relative strength from our Education and Cleaner Energy holdings, this offset only some weakness from our Sustainable Transport and Environmental Services themes.

Our Education theme performed strongly in June, as Grand Canyon Education recovered from last month’s weakness. Grand Canyon University has seen strong enrollment numbers for its courses ahead of the September 2022 intake, as well as healthy demand for on-campus housing. This provided reassurance that the higher education sector is recovering following the pandemic.

The Cleaner Energy theme was also positive, led by SolarEdge which continues to see huge demand for its solar inverters and power optimisers. This is particularly true in the European commercial sector, as businesses respond to the uncertainty created by the Russia/Ukraine war. Meanwhile, we continue to be excited by SolarEdge’s expanding portfolio of impactful products including EV chargers, solar batteries, and electric water heaters.

Sustainable Transport was our weakest theme in June. Infineon, one of our best performing companies in May, was one of our weaker names this month. Infineon is the global leader in power semiconductors which are used to power a wide range of electronic equipment and appliances. Following several quarters of strong results, investors fear that the semiconductor cycle may be entering a downturn. If true, this would imply that Infineon’s earnings growth may be about to slow down. While we share these concerns, structural demand for electric vehicles and renewable energy should offer more sustainable demand for the company’s products.

The Environmental Services theme was also weak. Smurfit Kappa, the worst performing name in this theme, produces sustainable paper-based packaging. The market fears that a weaker economy may dampen demand for Smurfit’s products, and in particular, that lower global e-commerce spending in the short term may mean less demand for packaging. Over the long term, we are confident that e-commerce will continue to expand, and we think that Smurfit’s positive impact will also support its growth. The company replaces environmentally damaging plastic packaging with sustainable paper-based alternatives. We also like the company’s strong competitive position and high barriers to entry.

The outlook for the second half of this year remains highly uncertain. A resurgence in COVID-19 cases in many countries around the world serves as a reminder that we are not ready to claim victory over the pandemic. Divisive politics and the rising cost of living both increase the likelihood of civil unrest, and tensions between countries are heightened as competition for scarce resources increases. We are also watching the shifting relationships between the US, Europe, and China, particularly as it relates to allegations of slave labour in supply chains.

In this context, we expect markets to remain highly volatile during the coming months. We will continue to be led by the long-term opportunities for positive sustainable impact to guide us through these near-term uncertainties.

Lower income households disproportionately affected by food insecurity

Consumers around the world are under pressure from rising inflation which erodes the value of real wages and savings. But these effects are not felt equally. Due to the composition of their income and consumption, lower income households generally suffer most when inflation increases. This is reflected in increasing food insecurity in low-income countries where food consumption generally accounts for about half of total household expenditure, as well as low-income households around the world.

The question of how we got here is complex. The answer encompasses politics, war, and economic policy. We investors can’t do much about any of these. But we can focus on finding solutions.

Over the long term, the best way to feed the eight billion people (and counting) who inhabit our planet is to improve crop yields and increase overall production. And to do so in a way that protects the environment and fosters biodiversity.

Trimble’s precision farming technology does just that. Trimble is a pioneer in flow and application control technology. This helps farmers save precious seeds while reducing the need for harmful fertilisers. Their products can even optimise water use – improving crop yields by up to 30%.

Trimble also provides connectivity solutions and software. These enable farmers to view, map, and record crop yields over time. Armed with this data, farmers can track the performance of their crops year by year, to improve seed selection and maximise crop production.

While Trimble’s innovations are great for crops, they are less equipped to help with livestock farming. Global meat consumption has been growing rapidly and, with it, greenhouse gas emissions. Today, nearly 15% of global emissions can be attributed to livestock.

The obvious (and best) solution is for wealthy Westerners to consume less meat and dairy. But realistically, this change in behaviour may take generations.

Recognising this problem, DSM has figured out how to reduce methane emissions from cattle. Bovaer® is a feed additive for cows, developed over 10 years by DSM. The product contains a molecule called 3-NOP which reduces enteric methane emissions by 30% for dairy cows and up to 90% for beef cows. This helps to mitigate the environmental damage from livestock production.

DSM has also found a way to farm fish more sustainably. Unbelievably, around 20% of all the fish caught in the world, and 75% of harvested fish oil, is used to feed other fish. This is all so that you and I can get our Omega-3.

DSM has developed Veramaris, an Omega-3 oil made from algae. Just one tonne of Veramaris can replace a whopping 60 tonnes of wild-caught fish. This can help keep us humans fed and healthy for years to come. It also means that huge quantities of wild fish are left where they belong – in the sea.

We recognise that these innovations offer little comfort to those currently suffering under a cost of living crisis. But they do give us hope that, over time, we will get better at feeding the world’s swelling population.

In a sustainable society, no-one should go hungry.