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Creating eco-friendly profits By Rob Griffin
Charlie Thomas, the manger of Jupiter's Ecology fund, is evangelical in his passion for the environment. As well as cycling to work each morning, he has been improving the energy efficiency of his London flat and buys "Everyone can make small changes in their lives, such as thinking twice before using the car," he says. "If we all do a little bit, then our cumulative actions will have a big effect on the world around us." The message appears to be getting through to people. You can't turn on the television or read a newspaper without seeing ethical issues being discussed, says Thomas, and this is helping to influence consumer behaviour. "An increasing number of people are now buying energy efficient light bulbs, for example, and investing in ethical funds," he says. "I believe these are long-term trends and we're investing in companies that will benefit the most." His claims are backed up by figures from the Investment Management Association which show the total funds under management in ethical products went up almost £1.4 billion to £5.7 billion in the year to June, a rise of 32%. Dual objectives The objective of the Jupiter Ecology fund is to achieve long-term capital appreciation, together with a growing income consistent with a policy of protecting the environment. It invests in companies across the world that are involved in six key themes: clean energy; water management; waste management; sustainable living; environmental services and green transport. As far as stock selection goes, Thomas is spoilt for choice. "Ten years ago there were around 250 companies involved in areas that matched our investment themes," he says. "Today they are in the thousands and that's why I see around 450-a-year." As a result of the its focus on finding companies involved in new technologies, the fund will generally have a small/mid-cap bias which is why there are currently around 90 stocks in the portfolio. "When we're investing in early stage companies, we initially take a small position and increase it as we become more confident in their ability to deliver," explains Thomas. "We don't take big bets on unknown companies." There are three main factors to consider when deciding whether or not a stock is worthy of a position in the fund: the quality of management, the viability of the business model and the technology/service it provides. "I call them the three pillars," says Thomas. "All of them have to be in place before you can make a credible investment." One stock that ticks all of the boxes is Latchways, a provider of safety equipment for people working high up on buildings, bridges and pylons. "We've held it for a very long time and think it's a very interesting small-cap company," he adds. It has a very strong, dominant position in the UK and is also growing internationally." Other prominent names among the 10 largest stocks in his fund are transport companies FirstGroup and Go-Ahead; environmental consultancy RPS Group and Gamesa, the Spanish manufacturer of wind turbine generators. Turnover will generally be low as Thomas prefers to thoroughly understand individual companies before bringing them into the portfolio, and give enough time for the investment story to play out. Over-excitement However, the nature of ethical investing means some themes within the fund can get rather over-excited, which is usually the point at which he decided to sell out of some positions until everything calms down. "We will then look to reinvest at a later date when valuations are more sensible," he explains. "At the moment, for example, we are holding around 17% in cash which we will be able to use to buy more stocks." Despite his strong ethical background and leanings - he has an MSc in Environmental Technology from Imperial College, London, and worked on climate change issues at BP - Thomas steels himself against getting too carried away with new ideas. "There's a lot of wonderful green ideas around but, unfortunately, not all of them are going to work," he says. "It's very easy to get sucked in by them, but first and foremost I'm a fund manager and if something isn't going to make your unit holders money then it doesn't make sense to have it in the fund." Looking ahead, there are three key reasons why Thomas believes ethical investing will thrive: environmental regulations are increasing, major corporate names are investing heavily into green products and consumers are far more aware of the issues. However, he's anxious not to portray it either as a way to generate bumper returns or a portfolio which is immune to stock market turbulence. "We are investing in small and mid-cap stocks so there will be periods of volatility," he says. "It's not for those wanting to make a quick buck as the aim is to match long-term environmental trends with investment horizons of three to five years."
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