Six little-known shares to tap into the sustainable investing theme
Latest retail fund sale figures from the Investment Association reveal that UK investors ploughed £1.3bn into responsible investment funds in the final quarter of 2019.
This is a staggering 584% rise from the £190m inflows reported at the start of the year, showing how investor attitudes are changing to more sustainable and responsible options.
The electric vehicle market is one of the obvious ways to play the theme with investors taking advantage of the meteoric rise of manufacturer Tesla.
But with concerns around the company’s $100bn valuation, investors may want to look for lesser-known companies with big ambitions to disrupt and innovate the sustainable market.
Keeping with the motor industry, Thomas Fitzgerald, co-manager of the EdenTree Amity International fund, suggests Aptiv as a consideration for investors.
This global technology company develops safer, greener and more connected technology solutions for cars. This is particularly relevant today as the industry moves towards electrification and autonomy and as vehicles become increasingly complex, technology needs to keep pace.
Fitzgerald says: “The company’s product portfolio matches key technological shifts in the automotive industry, while addressing some pressing socioeconomic challenges. Currently, there are 1.3 million deaths every year linked to road accidents, while globally, the transport sector is responsible for 24% of emissions.
“Rising technology demands should drive material structural growth across Aptiv’s product portfolio, which is focused on hardware, software, integration, power distribution and data analytics. The company’s well-established market positioning and ability to integrate the hardware, software and data analytics into one complete system are meaningful competitive advantages.”
For Jerry Thomas, head of global equities at Sarasin & Partners, TE Connectivity, the supplier of connectors for the full Tesla range, is one to watch.
He says the global connector industry is a $70bn niche market that has enjoyed 5% annual growth since the 1980s.
“Connectors are non-standard, must not fail components that link the essential electrical components in the harsh environment that is the modern car.
“We are on the cusp of an automotive revolution of connected, autonomous, shared and electric vehicles (‘CASE’). As electric vehicle demand inflects in 2021 this will provide a decade-long opportunity for TE Connectivity to grow content per vehicle,” he says.
Thomas expects the company to grow revenues 6% faster than the overall automotive industry.
“As the global economy recovers from a weak automotive market and depressed industrial production, this is a good time to be looking at this little-known, but leading supplier to all of the major global car manufacturers,” he says.
Reduce energy use and emissions
Another area investors could consider are companies that focus on reducing carbon emissions.
One example is Hannon Armstrong Sustainable Infrastructure which looks to reduce carbon emissions by providing capital to companies operating in the energy efficiency and renewable energy markets.
Will Argent, fund adviser to the VT Gravis Clean Energy Income fund, says: “This includes projects which reduce energy usage or cost through use of solar generation, electric storage or energy efficiency improvements such as heating, ventilation and air conditioning systems, lighting, energy controls, roofs, windows, building shells, and/or combined heat and power systems.
“Hannon Armstrong also invests in grid-connected renewable energy projects, such as solar and wind to generate power production.”
He also suggests NIBE Industrier, part of a group which contributes to a smaller carbon footprint and better use of energy.
Argent says: “It has three business areas which develop, manufacture and market a wide range of eco-friendly, energy-efficient solutions for indoor climate control in all types of property.”
With liquified natural gas in strong demand as electricity generators close down coal and oil-fired plants, Gaztransport & Technigaz is playing a small but crucial role to lower emissions, according to John Buckland, research analyst at Waverton Investment Management.
He says: “Currently GTT is securing nearly 100% market share for the design of containment systems for new LNGC ships (liquefied natural gas carriers) and it is also prominent in the design of LNG fuel tanks for ships generally, as well as land-based storage.
“LNG fuel enables ship internal combustion engines to meet strict International Maritime Organization 2020 emission regulations to reduce sulphur emissions.”
Buckland says Waverton has owned the stock for a number of years. “Its unique position provides strong pricing power and return to shareholders have increased along with earnings. “The outlook remains promising as many more LNG projects are under development, and the conversion of ship engines (from using dirty bunker fuel to low sulphur alternatives and LNG) is still in its infancy.”
For a slightly different take on the sustainable investing theme, US biopharmaceutical group AbbVie is one stock to consider. It is a leader in areas such as immunology, oncology and neuroscience, according to Johan Swahn, portfolio manager of Nordea’s Global Stars Equity strategy.
Nordea assesses companies on whether they conduct business responsibly in relation to their stakeholders and Swahn says AbbVie is a good example of a positive ESG company.
“Attention towards the healthcare sector has spiked in recent years on the back of the opioid epidemic in the US. In our view, the opioid crisis is in large part explained by excessive selling practices,” Swahn explains.
“Although AbbVie is not involved in the opioid crisis, the issue has highlighted the importance of understanding a company’s culture and incentive structure. When discussing business ethics – one of our ESG pillars – we found the AbbVie was generally aligned with global best practices.
“We have given AbbVie an A-rating in terms of ESG, reflecting in part its best practices around the governance structure to tackle the perhaps most material risk to its business – mis-selling. In addition, the company overall has strong policies and procedures in regard to product quality and safety.”