TAKE a trip around emerging Asia these days and you won’t just see skyscrapers and coal-fired power plants growing out of places where there were once nothing but fields. Wind turbines, solar energy plants, incinerator manufacturers, water treatment plants and microirrigation developments are just as likely to spring up before your eyes.
There is now recognition in the region that sustainable growth requires tackling the environmental issues such as water scarcity and climate change that have arisen as a result of rapid population growth.
Fund managers looking for strong growth opportunities are increasingly targeting environmental and sustainable industries. Khiem Le, a manager of the Axa WF Framlington Global Environment Fund, says the opportunities in the sector mean it will enjoy plenty of demand from institutional investors, unlike other industries such as auto, media or even finance. Firms across the region such as Chinese smart meter provider Wasion, Indian microirrigation firm Jain Irrigation and Manila Water in the Philippines are benefiting as a result.
While the Axa fund is global, some funds are targeting the Asia-Pacific area specifically. Impax Asset Management launched its Asian Environmental Markets closed-end investment trust last October to do just that and Jupiter followed suit in mid-December with its China Sustainable Growth fund.
The Impax investment trust has a total fund size of £122.6m and its net asset value (NAV) has grown by 10.3 per cent since its launch. The four-month-old Jupiter open-ended fund is gently building up assets under management – it currently has around £19m.
These funds seek long-term returns, making them ideal for pension funds – the second biggest declared shareholder in Impax’s Asian Environmental Markets trust is the London Pension Fund Authority. The biggest shareholder is Invesco Perpetual, which is gaining from Impax’s environmental expertise and network in both the region and the sector. Both funds are looking to get in early and capitalise on emerging Asia’s long-term growth prospects.
Policy is also shifting, says Bruce Jenkyn-Jones, who manages the Impax fund: “We detected a sea-change in the approach of governments in the region to the [environmental] sector and the propensity to launch budgets and policies to support it.” For example, the past few years have seen Chinese wind turbine manufacturers becoming competitive with US producers, thanks in part to government support.
Fund managers looking at growing their exposure to Asian environmental markets should not try to find the perfect company. Philip Ehrmann, manager of the Jupiter China Sustainable Growth fund, says that in an environment which is so young and where there is so much change, you won’t find them. “We are seeking companies which make money as a result of becoming leaders in their fields and contributing towards sustainable growth,” he explains. “As they make progress, so do you and you can increase your exposure.”
BENCHMARKS | FTSE ENVIRONMENTAL OPPORTUNITIES
Launched in June 2008, this is a series of indices that measure the performance of global companies that have significant involvement in environmental business activities.
These include renewable and alternative energy, water infrastructure and technologies, pollution control and waste management and technologies.
A minimum of 20 per cent of revenue must come from environmental markets or technologies. The FTSE Environmental Opportunities Asia ex-Japan index was up 7.4 per cent in the quarter to February.