Commentary

In October, Covid-19 spread through the northern hemisphere with the onset of winter, setting new infection records in several countries. Global stock markets were rattled by the prospect of further lockdowns in Europe and the US. Some investors were also repositioning themselves in advance of the US Presidential election in early November.

Against this backdrop, the Fund’s benchmark MSCI World Index declined -1.1% over the month. The Fund gained slightly, outperforming the benchmark with a return of +0.1%.  Similar to last month, this outperformance was driven by the Health and Resource Efficiency themes. It was partly offset by weaker performance in the Wellbeing and Education themes.

Our Health theme made the largest positive contribution. HMS Holdings was the standout stock in the theme. It is an information technology company which helps to make sure costs are properly allocated in the US healthcare system, thereby reducing waste. It has also expanded into population health management (“PHM”). Its PHM services improve the wellbeing of population by identifying high-risk members and engaging them to take action. They also provide comprehensive care management when needed. The stock price surged due to an unconfirmed report of a possible sale of the company.

Both Danaher and Thermo Fisher also contributed strongly in the Health theme. They both have a very strong market position in the scientific instruments industry. As scientists have been working tirelessly on COVID vaccine and therapies, both companies saw strong demand for their life sciences tools.

Our Resource Efficiency theme was another strong performer. Daifuku was once again the best contributor to performance in the theme this month. It is a leading material handling system provider. The pandemic has revealed the vulnerability of global supply chains. The demand for logistics equipment and technologies are likely to accelerate in order to improve supply chain efficiency. Daikin shares also did well. It is a leading manufacturer of energy-efficient air conditioners and refrigeration equipment. It has managed to raise its guidance twice this year despite the challenging business environment, due to its tight control on costs.

Wellbeing was the weakest theme this month. It was largely driven by the poor performance from Orpea. It is a high-quality operator of elderly care homes as well as post-acute and psychiatric clinics. Despite its stellar performance in handling the pandemic, the stock was under huge pressure due to the further lockdown measures imposed in some European countries.

Our Education theme continued to underperform in October. As explained last month, the US education sector is seen as very politically exposed. Both of our holdings in the theme, Grand Canyon Education and Strategic Education, continued to be under pressure ahead of the US presidential election. Nevertheless, we are happy to hold both companies despite this political noise.  They are making a meaningful positive social impact. They help to address a serious skills gap problem through providing high quality accessible online education. They also both focus on underserved populations.

Uncertainty abounds in the coming month. The effectiveness of the national lockdown in Europe remains to be seen. The associated economic fallout is hard to predict. Policy changes following the US presidential election will have a significant impact in a number of themes that we invest in.

All these outcomes will be fed into our investment decisions as they become available. Overall, we continue to see that the sustainability solutions we invest in are well-suited to helping the pandemic response. And in the longer term, they will prove themselves to be the industries of the future.

Science 101: Will the Republicans come back to class?

Barring some unlikely events, Donald Trump will not be returning for a second term as President of the United States. The question is then whether his views and policies will survive without him in office? This thorny question will play out in US politics for the next few years at least.

The bad news is that the global progress of sustainability, and particularly the fight against climate change, will depend on the answer. Perhaps surprisingly, there is good news too. It is actually now possible to imagine a Republican Party which isn’t rigidly opposed to climate action.

At the moment, Donald Trump is the right wing of American politics. That something like 71 million Americans voted for it and him, is partly down to who he is and his uncanny ability to pick the stances that fit with his voter coalition, and partly because he embodies some core beliefs they share.

Some of those beliefs can be hard to define, however, two core aspects were evident in Trump even before his entry into politics. The first is his take on race, immigration and American identity. The second is his aggressive “zero sum” view of international trade.

This was apparent as the USA withdrew from the Paris Accord – an example of international cooperation – and crushed a raft of other environmental protections and regulations.

We also do not believe that Donald Trump understands climate change. But he knows that he can cast it as a liberal conspiracy to help rally his crowds.

So here’s the rub. He will at some point leave the stage. Or at very least, stop reliably delivering massive political capital for the Republicans. When that happens, they will need to win votes on their own again.

Will it make sense for them to stay on the wrong side of this bit of history? Even the most committed fossil energy enthusiasts can already see the world is changing. The oil patch is crumbling, and there are plenty of jobs in the green economy. A new industrial complex is emerging, complete with flag-waving American champions. Energy independence will be more real than it could ever be in the fossil era.

Is it a core Republican position to oppose this as unwaveringly as they might for gun rights and immigration control? It’s not even that important for the man himself. As the public mood changes, will they still cling to climate denial?

It will take much of the time which is now in short supply to find the answer to this. But at least this weekend’s results give a glimmer of hope. It is still some way off, but climate change may yet unite Americans more than it divides them.