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Interesting way to back disruptive firms improving the world
The sustainable, impact, ethical and broader ESG investing space has become a bit busy and investors increasingly want to move away from the crowd. Rather than be in the obvious names, it often pays to look elsewhere for opportunities and Shares has spotted a very interesting fund that might be the solution.
Artemis Positive Future Fund (BMVH597) invests in companies helping to make the world a better place, and it does so in a slightly different way to other funds of its ilk.
There is a lot of investor interest in these types of ‘positive change’ funds, but they often invest in the same group of companies such as Vestas Wind Systems and Unilever (ULVR), meaning this has become a crowded trade and harder to achieve outperformance versus the peer group.
The key difference with Artemis Positive Future Fund is that more than 65% of its portfolio is in medium and smaller-sized companies which are lesser known, and not the classic names in broader ESG/positive change funds.
Admittedly, there is some crossover with other funds of its type such as a position in large cap electric vehicle group Tesla, but these are the exceptions rather than the norm.
LESS THAN A YEAR OLD
Artemis Positive Future Fund only launched on 6 April this year and one should never judge the performance of a fund on a short-basis – for reference, it’s up just over 3% in that period.
Bringing greater comfort in the fund’s potential is the track record of its managers. The four individuals running the Artemis fund all worked together at Kames which now goes under the name of its parent company, Aegon Asset Management.
Three of them co-managed the Aegon Global Sustainable Equity Fund (BYZJ377) and generated a 16.9% annualised return while managing that strategy. That fund was the fourth best performer out of 224 funds in the IA Global Equity sector during their tenure. The fourth member of the Artemis team is Ryan Smith who was previously head of ESG research at Aegon.
Their track record gives credibility to the new Artemis fund and they are now in an environment where they have more freedom to make decisions, with suggestions that Aegon had a more stifled atmosphere with a lot of bureaucracy. Rather than simply put money into the established Aegon fund, it is worth following the managers to their new fund given they were the ones helping to achieve those strong returns.
The Artemis fund invests in companies that it believes will deliver transformational change, focusing on disruptive, innovative companies making a different to the world. Co-manager Neil Goddin says disruption as a concept has been around for a long time. It was there in 1920s when roads were built; now it involves disrupting the fossil fuels sector to change the energy mix and delivering cheaper and more efficient healthcare, to name but two examples.
The fund’s portfolio has between 35 and 45 stocks and investee companies tend to have the following characteristics versus the broader market: higher revenue growth, higher margins, lower capex to sales, lower net debt to capital, lower carbon emissions to sales, higher free cash flow margins and higher valuations (price to earnings, price to book, price to sales). It has a 0.9% ongoing charge.
While many of the companies in its portfolio are not household names, their impact on society is very powerful once you look at what they do as a business.
The biggest holding is Everbridge which has software to alert people on mass in the event of an emergency. ‘It was developed following the 9/11 tragedy,’ says Goddin. ‘One of the founders worked in an area where the planes hit and thought if there was better communication, more lives could have been saved.’
Everbridge works with companies and governments to deliver emergency communications, such as keeping people away from a chemical leak or during gun attacks in schools to help keep pupils safe. Companies used Everbridge’s systems to locate staff as the Covid-19 pandemic took its grip, and the technology has also saved lives warning people about extreme weather events such as cyclones.
The Artemis fund has a position in Kornit Digital, an Israeli digital printing company which is helping to change the face of fast fashion. This industry traditionally uses a lot of water, energy and has significant wastage. Kornit enables clothing manufacturers to run shorter print cycles and produce items closer to where the products are sold, ultimately allowing them to control inventory far better.
Other investments include MIPS which has done something very clever with bike helmets. The biggest risk to a cyclist in an accident is brain damage. MIPS puts a piece of plastic in a helmet that reduces rotational motion transferred to the brain in the event of an impact.
The company licences its technology to helmet manufacturers and increasingly bike riders are happy to pay for this extra safety protection. Growth is coming from both traditional bikes and electric ones, as well as skiing, snowboarding, horse riding and construction.
The fund also invests in hearing aid specialist Amplifon and a company called Insulet which has an innovative way of administering insulin.
NEED FOR PATIENCE
Investing in the Artemis fund will require patience and its focus on smaller companies means it could be more volatile than a large cap global ESG fund.
‘The world is well supplied with funds investing in mega-cap businesses that are wedded to the status quo,’ says Artemis.
‘Moving beyond this means being unorthodox: it means having the courage to fail, the courage to hold, the courage to wait – and the courage to be different. Only in this way can we – and our clients – hasten (and seek to profit from) the transition to a positive future.’