Global equity markets rebounded strongly in April, recovering much of March’s weakness as investors looked beyond the initial geopolitical shock of the Iran war, and moved back into risk assets. Market returns were heavily driven by non-sustainability sectors and themes including mega cap technology, semiconductors and AI related companies. The Fund delivered a return of +2.1% over April, compared to the MSCI World which returned +4.4%.
Managing Director, Fund Manager
Managing Director, Head of Impact Research
The Pengana WHEB Sustainable Impact Fund invests in companies with activities providing solutions to sustainability challenges. WHEB have identified critical environmental and social challenges facing the global population over coming decades including a growing and ageing population, increasing resource scarcity, urbanisation and globalisation. The Fund invests in companies providing solutions to these sustainability challenges via nine sustainable investment themes – five of these are environmental (cleaner energy, environmental services, resource efficiency, sustainable transport and water management) and four are social (education, health, safety and well-being). WHEB’s mission is ‘to advance sustainability and create prosperity through positive impact investments.’
1. From August 2017, performance figures are those of the Pengana WHEB Sustainable Impact Fund’s class A units (net of fees and including reinvestment of distributions). The strategy’s AUD performance between January 2006 and July 2017 (shown in the shaded area in the chart) has been simulated by Pengana from the monthly net GBP returns of the Henderson Industries of the Future Fund (from 1 January 2006 to 31 December 2011) and the FP WHEB Sustainability Impact Fund (from 30 April 2012 to 31 July 2017). This was done by: 1) converting the GBP denominated net returns to AUD using FactSet’s month-end FX rates (London 4PM); 2) adding back the relevant fund’s monthly ongoing charge figure; then 3) deducting the Pengana WHEB Sustainable Impact Fund’s management fee of 1.35% p.a. The WHEB Listed Equity strategy did not operate between 1 January 2012 and 29 April 2012 – during this period returns are nulled. The Henderson Industries of the Future Fund’s and the FP WHEB Sustainability Impact Fund’s GBP net track record data is historical. Performance figures are calculated using net asset values after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance. The value of the investment can go up or down.
2. The Fund incepted on 31 October 2007 as the Hunter Hall Global Deep Green Trust. The Fund was relaunched on 1 August 2017 as the Pengana WHEB Sustainable Impact Fund employing the WHEB Listed Equity strategy. This strategy was first employed on 1 January 2006 by the Henderson Industries of the Future Fund and currently by the FP WHEB Sustainability Impact Fund.
3. Annualised standard deviation since inception.
4. Relative to MSCI World Total Return Index (net, AUD unhedged)
* For further information regarding fees please see the PDS available on our website.
COMMENTARY
Global equity markets rebounded strongly in April, recovering much of March’s weakness as investors looked beyond the initial geopolitical shock of the Iran war, and moved back into risk assets. The fragile ceasefire in the Middle East helped ease the most acute concerns around energy supply disruption, although oil prices remained elevated and the inflationary implications of the conflict continued to influence central bank messaging.
Meanwhile the enthusiasm for artificial intelligence (“AI”) continued unabated as the strongest gains came from companies with the clearest link to building out the technology. Semiconductor related businesses benefited from continued confidence in data centre spending, advanced computing demand and the broader build out of AI infrastructure. This also supported Asian and Emerging markets such as Taveryiwan and South Korea, where many leading companies sit within the global semiconductor supply chain.
Defensive and interest rate sensitive areas, which had held up better in March, lagged as capital rotated back towards higher growth opportunities. Healthcare was again a notable weak spot. Despite its historical reputation as a defensive sector, it remained under pressure from US policy uncertainty, including drug pricing, reimbursement, tariffs and regulation. This has left investors cautious, even though the long term need for more efficient and accessible healthcare systems remains clear.
We also saw the widening EU-US sustainability divide. Europe pushed ahead with a more pragmatic agenda, advancing the Circular Economy Act and simplifying reporting rules while preserving the direction of travel. In the US, federal climate and ESG disclosure momentum weakened, reinforcing a more fragmented backdrop driven by individual states.
Strategy Review
The Fund delivered a positive return of +2.1% over the month, although it lagged the very strong +4.4% rebound in the MSCI World, which was driven heavily by mega cap technology, semiconductors and AI related companies.
The strongest contributions came from holdings exposed to the recovery in semiconductor sentiment. Infineon Technologies, in the Sustainable Transport theme, rebounded strongly, supported by improving investor appetite for companies linked to power semiconductors, electrification and automation.
The Resource Efficiency theme also benefited from renewed enthusiasm for AI related growth. Power Integrations outperformed as investors focused on the relevance of its products for data centre power efficiency. Keyence, a Japanese automation leader, also recovered after a weak March, helped by a positive response to the company’s initial steps towards using its balance sheet more actively through share buybacks.
Weakness was concentrated in defensive and healthcare related holdings. The Water Management theme came under pressure as rising bond yields weighed on interest rate sensitive utilities, with American Water Works particularly weak. Ecolab also lagged. Although its results reinforced the core investment case, investors were cautious about how the company might navigate the potential of another inflationary cycle.
Healthcare remained the main area of pressure. Thermo Fisher was weak as life sciences tools companies continued to face subdued demand from biopharma and academic customers, with investors still cautious on the timing of a recovery in research spending. AstraZeneca also lagged, reflecting weaker sentiment towards large pharmaceutical companies amid concerns around US drug pricing, regulation and potential tariff pressure.
Outlook
The outlook for markets remains finely balanced. April’s rebound showed that investor appetite for long term growth remains strong, particularly in areas linked to artificial intelligence, electrification and digital infrastructure. However, geopolitical risk, elevated energy prices and persistent inflation continue to complicate the outlook for interest rates and economic growth.
For sustainability focused investors, the near term environment remains challenging. Market leadership is narrow and sentiment towards sustainability remains cautious. At the same time, policy support is becoming more pragmatic, with governments increasingly focused on competitiveness, security of supply and affordability rather than environmental ambition alone.
We believe this evolution supports the long term case for the investment strategy’s themes. The rapid growth of AI and digital infrastructure is a clear example. It is creating new opportunities, but also increasing pressure on electricity networks, cooling systems, water use and land availability. Companies that can improve efficiency, resilience and productivity across these systems should be well placed.
We therefore continue to see attractive opportunities in businesses providing practical solutions across resource efficiency, cleaner energy, sustainable transport, health, safety and education. Markets may remain unsettled in the near term, but the structural need for more efficient and resilient systems remains compelling.