Current outlook

The fund is overweight in the consumer staples, industrials, health care & information technology sectors; and underweight in energy, financials and real estate. Regionally, the fund is overweight in Japan, neutral in Europe and underweight in the US as we believe valuations look expensive and there aren’t many companies that meet our strict criteria on sustainability.

In the current environment of stubbornly high inflation, we look for quality companies that have strong pricing power and solid balance sheets, making them able to weather the storm of rising raw material, feedstock, logistics and other input costs. We are also firmly of the belief that ongoing geopolitical tensions and high energy costs, coupled with increasingly visible effects of climate change, will drive accelerated investments into the energy transition, benefiting innovative pioneers in the energy efficiency and renewables spaces.

In the remainder of 2022, economic growth will likely slow, while inflation will likely remain stubbornly elevated. For many companies, this means that it will become harder to maintain profit margins, and so company earnings could fall, which could lead to lower share prices. Therefore we believe it is vital to remain selective with the investments we hold in the portfolio.

At the same time the money supply is expected to deteriorate worldwide due to central bank tightening in most of the major advanced economies. On top of that, investor sentiment is likely to stay muted due to the ongoing war in Ukraine, growing recession fears and a possible return of COVID-related restrictions later in the year.

Performance review

Over the first four months of the year the fund has fallen by 9.98% compared to the benchmark which has fallen by 7.32%.  While on the face of it this is disappointing, benchmark funds have benefitted from rising prices in sectors we wouldn’t traditionally invest in such as fossil fuels.

Calendar year return

Triodos Pioneer Impact Fund compares its return and the sustainability scores of the companies that it invests in with the MSCI World Small & Mid Cap Index in GBP as a (non-sustainable) global benchmark. The investment policy that is pursued by the fund is not aimed at replicating or outperforming the benchmark in the short term. The fund may deviate from the benchmark because the fund only invests in companies that meet our strict sustainability criteria. All returns stated have been calculated based on net asset values, including reinvestment of dividends where applicable. Benchmark is the MSCI World Small & Mid Cap Net Total Return Index in GBP from April 2018 onwards. Prior to April 2018, the fund’s benchmark was a custom composite comprised of WilderHill New Energy Global Innovation Net Total Return GBP (30%), FTSE Environmental Opportunities All-Share Total Return GBP (30%), MSCI Net Total Return World Health Care Equipment & Services GBP (30%), MSCI Net Total Return Small Cap World GBP (10%). Past performance is not a reliable indicator of future performance.

Stocks in focus

Past performance isn’t a guide to future returns, returns shown are from 01/01/22 to 30/04/22

Strategic Education

US-based online education provider Strategic Education reported a strong end to 2021, but the first quarter of 2022 was less well-received by analysts as growth appears to be moderating after Covid. The company serves working adult students globally and saw enrollments in its US Higher Education segment (Strayer University, Capella University) and in its Education Technology Services segment (employer solutions) decline, while its international operations in the recently acquired Australia & New Zealand offering also saw falling student enrollment. Though accounting earnings indicated a loss, the company has a strong cash position and has plenty of earnings to cover its dividend. 

euglena

Japanese company euglena, which produces euglena-based products for health, nutrition and environmental applications, benefited from positive news around the use of its biofuels in a successful test as aviation jet fuel. As oil prices are moving up due to geopolitical reasons and economies are accelerating the search for greener energy solutions, we believe there is considerable upside ahead for euglena.

Bakkafrost

Salmon prices have been on the rise this year: the salmon market has tightened significantly in the wake of strong demand for fish protein and disappointing harvests globally. Bakkafrost is a Faroese producer of high-quality salmon which sells for a solid price premium as better fish health results in better nutritional characteristics (more omega-3 fatty acids, higher vitamin D content). While volume growth in the Faroe islands continues as planned, the recently acquired Scottish assets have faced some biological setbacks, but we expect the company to bring these operations up to par with the Faroese standards in the coming years which should support future growth.

GN Store Nord

The Danish audiology company GN Store Nord reported a weaker than expected set of first-quarter results in its hearing division with Chinese hearing aid sales down as a result of cities being in lockdown and hence people not visiting audiologists, as well as  component supplies seeing issues with Chinese factories not producing at full speed. Also, traditional healthcare investors are concerned that after the Steelseries gaming acquisition, the audio (communication) division - which is now a bigger part of the pie -  will bring more volatility to GN’s earnings profile.

Straumann

The Swiss dental implant Strauman, a company clearly aligned with the Triodos mission, showed strong results across the board in Q1, but became a victim of its own success as the market moved away from rewarding high growth companies with high valuation multiples, shifting to buying value stocks instead. Straumann remains a top-quality core holding in portfolio with a strong product proposition and a solid management team.

Teladoc Health 

A clear case of high valuation meets slowing growth and lower visibility. Once a growth stock at lofty multiples, Teladoc Health  has fallen from grace after a series of disappointing results even weeks after management released more optimistic guidance. While we like the long-term growth story in telehealth, we expect more from  Teladoc hence we have the investment under review.