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IMPQ July Monthly Report & Update

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IMPQ Monthly Report
  • The Future Impact Small Caps Fund finished the month up 0.8% net of fees, underperforming the benchmark return by 0.6%.
  • Since inception in May 2019 IMPQ has delivered an 4.8% p.a. return net of fees, outperforming the benchmark by 8.8% p.a.
  • Negative contributors this month included Phoslock Environmental Technologies (-29.5%), Fluence Corporation (-18.8%) and Carbon Revolution (-16.3%).
  • Positive contributors this month included Netwealth (+33.9%), Imricor (+24.2%), City Chic Collective (+17.2%) and Mesoblast (+12.6%).
Performance
Month (%)Quarter (%)FYTD (%)1 Year (% p.a.)Since Inception* (%)
eInvest Future Impact Small Caps Fund0.810.80.81.24.8
S&P/ASX Small Ordinaries Index1.49.91.4-8.5-4.0
Added value (detracted)-0.60.9-0.69.78.8

^Inception date was 23 May 2019. IMPQ returns are calculated using net asset value per unit at the start and end of the specified period and do not reflect the brokerage or the bid ask spread that investors incur when buying and selling units on the ASX. Past performance is not a reliable indicator of future performance.

Monthly Highlights

During the month NZ renewable energy company Meridian Energy announced that RIO Tinto had given notice that it would be terminating the electricity supply contract for the Tiwai aluminium smelter on the South Island of New Zealand on 31 August 2021.

RIO decided to close the Smelter after being unable to negotiate lower electricity prices with electricity providers and the NZ government.

While this creates some short-term headwinds for Meridian and the New Zealand electricity market, the surplus lower cost renewable energy is likely to result in a reduction of fossil-fuel fired power generation over time.  In addition, the NZ government has announced incentives for industry on the South Island to switch from fossil fuels to hydro renewable energy. This is a major positive for the planet and New Zealand’s climate policy.

Meridian will look to sell the renewable energy that it is currently selling to the smelter to other commercial customers and retail customers. These contracts are typically at higher price points than the smelter and this will go some way to offsetting the impact of the contract loss to Meridian.  The Meridian share price was down 2.6% during July.

Fund Review

The Future Impact Small Caps Fund finished the month up 0.8% net of fees, underperforming the benchmark return by 0.6%. Since inception in May 2019 IMPQ has delivered an 4.8% p.a. return net of fees, outperforming the benchmark by 8.8% p.a.

Negative contributors this month included Phoslock Environmental Technologies (-29.5%), Fluence Corporation (-18.8%) and Carbon Revolution (-16.3%).

Positive contributors this month included Netwealth (+33.9%), Imricor (+24.2%), City Chic Collective (+17.2%) and Mesoblast (+12.6%).

Carbon Revolution and water remediation companies Phoslock and Fluence each announced greater than expected impacts on their business from COVID-19.  In the case of Phoslock, the impact was amplified by recent extensive flooding in China which has had an impact on the company’s Chinese operations.

Netwealth delivered a better than expected quarterly update. While Imricor announced that it had entered into a non-exclusive sales distribution agreement with Philips Electronics.  Philips is a leading manufacturer of MRI Equipment.  Under the agreement Philips will sell Imricor’s MRI-compatible products to assist with cardiac arrhythmia surgery as part of the iCMR installation package that Philips sells to hospitals.  This is likely to assist with the adoption of Imricor’s products in Europe.

City Chic Collective which is an “Engaged Improver” holding, announced a capital raising for the acquisition of the e-Commerce assets of Catherine’s, a US plus-size fashion retailer.  City Chic is currently the preferred party to acquire the assets out of the bankruptcy process for Catherine’s “bricks-and-mortar” business in the US.  If it is successful, in our view it will have acquired the assets at an attractive price – likely less than 5x expected EBITDA. The company successfully acquired the eCommerce assets of the US business Avenue Stores through a similar process last year.  After this acquisition over 80% of the company’s sales will be through online channels.

Mesoblast announced the Oncology Drugs Advisory Committee of the US Food and Drug Administration has scheduled a meeting in mid-August to consider the approval of the Company’s RYONCIL product for the treatment of acute graft versus host disease (aGVHD) in children.  aGVHD is a serious condition which typically impacts children who are being treated for leukemia.  If the company receives this approval, it will be a significant milestone for the company.

During the month we participated in the City Chic capital raising and added to our positions in New Energy Solar, M7 Technologies and Smartgroup.  We sold out of EstiaHealth after it became apparent that the second wave of the COVID-19 outbreak in Victoria was likely to have a significant negative effect on both the company’s business and the aged care sector in general.

At month end the Fund held 40 stocks and cash was 8.8%.

For July, the weighted average Perennial-derived Environmental, Social, Governance and Engagement (“ESGE”) Score of the Fund was 7.2 which is 27% higher than the benchmark ESGE Score of 5.7.

ESG Activity

Our ESG activities during the month included:

  • We attended the Carbon Action 100+ Working Group Meeting which discussed the progress on the Carbon Action 100+ engagements with significant ASX-listed carbon emitters.
  • We met with ClimateWorks to discuss how the organisation is assessing the extent to which listed companies are making commitments aligned with the emission reduction targets outlined in the Paris Agreement.  The work has led to the development of the netzerotracker.org website.
  • We engaged with Mach7 Technologies to encourage greater gender diversity at a board and executive level.
  • We engaged with City Chic Collective in relation to the supply chain of the Catherine’s business that the company is seeking to acquire.  The company is planning to manage supply chain risks by moving production to City Chic’s existing suppliers where, as discussed in last month’s update, the company has in place processes to manage and improve outcomes in relation to the supply chain.
  • During the month we attended a call with management of Calix. They discussed their project LEILAC which uses Calix technology to reduce CO2 in the lime and cement industry. The process involves grinding the minerals to make very small particles and then heating them to extract and separate the CO2 emitted. They view their CO2 emissions reduction technology a material opportunity. They compared their technology to the closest competitor who uses chemicals to absorb the CO2 in lime and cement. They also discussed their water treatment business which can improve the sustainability of wastewater through re-use, improve aquaculture through improved water quality while reducing energy costs and pollution and their process of converting waste water into renewable energy.

This is analysis done on the Sustainable Future Trust portfolio as at Feb 2020 by the Sustainable Platform

To read more about eInvest Future Impact Small Caps Fund (Managed Fund) ASX: IMPQ, click here.

Interested in purchasing units in the fund? Contact your financial adviser or simply purchase via your online broker, and as always read the PDS for more information. This can be found here. 

Past performance is not a reliable indicator of future performance. Please read the PDS prior to investing. This information is general in nature and is subject to the terms and conditions outlined here.