The COVID-19 pandemic created significant market volatility throughout March and into April. While this has been a trying time for investors and listed companies, the current volatility is likely to create investment opportunities and can also create opportunities for companies – as it has done for some of the companies in the eInvest Future Impact Small Cap Fund (Managed Fund) (ASX:IMPQ). IMPQ doesn’t just exclude stocks which are negative from an ESG point of view but seek to invest in companies that are making a positive contribution to a sustainable future, broadly defined – with key themes being renewable energy, water remediation, healthcare and education.
We believe that Australia is relatively well placed to manage the virus compared to other countries given that social distancing measures appear to be flattening the curve, stimulus announced by the federal government will help to support the economy, testing per capita is one of the highest in the world and Australia has a relatively low population density. The chart below which is adjusted for population size indicates that, so far, Australia and New Zealand are much better placed than many other countries.
While the current conditions have been extremely difficult, there are still some better news stories for a number of stocks that are adapting under the circumstances of the pandemic.
A stock to have seen increased demand for some of its services is Janison Education. Janison (ASX: JAN) provides online assessment and learning solutions and is experiencing an increased demand given the need for virtual education. It has recently signed the Centennial College Toronto as a client and expects to convert the first course to online within 4-6 weeks. Janison is up over 16% month to date for April at the time of writing. Education is another theme in our Sustainable strategies that is improving social outcomes for society. Education is also aligned with the UN’s Sustainable Development Goal 4: Quality Education.
In the retail space, we hold City Chic (ASX:CCX) and Kathmandu (ASX:KMD) which are both “Engaged Improver” stocks as they are seeking to improve ESG outcomes in the retail industry through a variety of initiatives.
Kathmandu is a global outdoor apparel provider and the share price has been badly impacted as Kathmandu and Rip Curl stores have shut globally as a result of social distancing restrictions in many countries around the world. This has resulted in the share price being down ~65% in the last 3 months. It subsequently undertook a capital raise to ensure that it had sufficient liquidity for an extended shut down period. We exercised our rights to support the business through this difficult time and as we see upside when it is able to reopen its operations.
City Chic is a plus sized women fashion retailer. Although many brick and mortar stores have been forced to shut, City Chic generates 70% of its sales online which allows it to continue to sell its products to customers. When it announced the closure of the physical stores at the end of March, it highlighted the importance of their retail staff as the “heart of the brand” who have “created the Sisterhood.” They showed corporate leadership by committing to not stand down any part time or full-time store team members for at least the next month, by which time it is hoped to be in position to have a clearer view of the road ahead.
In the healthcare space, we hold Mesoblast (ASX:MSB) and Genetic Signatures (ASX:GSS). They have both recently made announcements related to the treatment and testing of COVID-19 patients.
Mesoblast provides products for inflammatory diseases and has received US FDA clearance for the use of Remestemcel-L to treat acute respiratory distress syndrome (ARDS) which is caused by COVID-19. The product enhances the recruitment of naturally occurring anti-inflammatory cells to involved tissues. The safety and therapeutic effects of Remestemcel-L has been tested in 1,100 patients. At the time of writing, Mesoblast is up over 60% month to date given the announcements.
New York Time wrote an article on Coronavirus Vaccines that featured Mesoblast
Genetic Signatures is working to develop, get regulatory approval and sell its 3base™ technology to detect infectious diseases. The 3base™ technology provides results more quickly than traditional tests and allows higher throughput. GSS announced in March that it had modified its test kits to also detect the COVID-19 virus and that it was seeking fast-tracked regulatory approval for the new test in Europe, the UK, US and Australia. The company also announced that it had commenced sales of the tests to labs in the UK and Europe under regulatory exemptions in the interim. It has received CE mark regulatory approval in Europe and Australia during April. GSS is up >85% in the last 3 months.
Mesoblast and Genetic Signatures help to improve patient outcomes for those impacted by the coronavirus. Healthcare is one of the themes of our portfolio, and MSB and GSS are what we call “Sustainable Future Enablers”. These are stocks that we believe are having a positive impact on a sustainable future. Healthcare is also related to the UN’s Sustainable Development Goal (SDG) 3: Good Health and Wellbeing.
Whilst the volatility of the markets has been challenging, it has created some investment opportunities for IMPQ. We continue to seek interesting smaller companies that make a positive contribution to a sustainable future.
Authors: Damian Cottier & Emilie O’Neill
Note: IMPQ performance as 16th April 2020.
Please note that these are the views of Damian Cottier and Emilie O’Neill and were prepared for information purposes only. Accordingly, reliance should not be placed on this presentation as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.
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