SUMMARY
For the month ending 31 January 2020, the Fund returned 2.1% compared to the MSCI World Net TR Index (AUD unhedged) which returned 4.4%. The emergence of the Wuhan coronavirus has created a headwind to growth in China, with many sustainable products created in a global supply chain that includes China. As the virus spreads, so the challenge to global growth will increase.
Sustainable Transport was the worst-impacted theme, accounting for over half of the underperformance. Companies in the theme include Norma, Aptiv, and Hella. They all provide components enabling low- and zero- emissions cars and trucks. Part of the growth story for these companies is demand from China. China already leads the world in some areas of low-emissions transport, for instance electric-drive buses and is also a key manufacturing site for the components these companies use. The current slowdown from the coronavirus is creating a clear near-term challenge for these companies. In the longer term however, we do not see how this will undermine the transition to low-carbon transportation.
Other impacted stocks included AO Smith which sells water and air purification equipment, and efficient water heaters; DSM which supplies nutrition and specialty materials; and Horiba provides gas testing and control equipment. With all of these businesses, we remain convinced of the longer term sustainability-led opportunity for each of them.
This underperformance was partially offset by companies with more U.S. domestic exposure. These include Roper Technologies which is benefiting from a big traffic control contract in New York, and TPI Composites which was the biggest single positive contributor. TPI supplies wind turbine blades. A decision by the U.S. Congress to create a more favourable regulatory environment improved sentiment in the sector. Even before this, we were very positive on the prospects for wind power.
We also had a positive contribution from our Water Management theme. The companies in this theme play an important role in climate change adaptation. Two of the smaller companies in the theme did well this month: China Water Affairs, and Advanced Drainage Systems (ADS). ADS is a recent addition to the portfolio and its range of storm- and waste- water management products are in high demand in southern and south western U.S. states, which are particularly impacted by a changed climate. It also uses recycled input plastic, benefiting from the lower costs of a circular economy.