Known more for reigniting the US coal industry than environmental policies, president Donald Trump has proven to be periodically detrimental to one fund’s returns.
The €2.6bn Pictet Global Environmental Opportunities fund has gone through two calendar years of underperformance in the past five years – both related to Trump, according to manager Luciano Diana. The first occurred in 2016 when Trump was elected and the second in 2018 when he embarked on his trade war with China.
And for a fund which invests in safe-guarding the planet, Pictet Global Environmental Opportunities was consequentially impacted by one of the key economies in the world going from a green outlook to black.
“Trump has been a surprise for us when it comes to the decisions that he's taken,” Diana said. “I cannot say that I predicted the US pulling out on the Paris Agreement. I cannot say that I predicted that he would push for such a strong regulatory rollback on environmental regulation. So, we had to deal with this for the last few years and we had this performance.”
Annual calendar performance of fund vs index over 5yrs
Source: FE Analytics
Coming into office, Trump scrapped much of the environmental agenda put in place by his predecessor Barack Obama and within days launched his ‘America First Energy Plan’, which featured no renewable energy solutions and set the tone for his environmental policy stance.
Since then Trump has maintained this stance, making the US the only nation to not be a part of the Paris climate accord and leaving numerous G7 summit meetings early to miss the environmental discussion portion.
But with the US presidential election coming up in November this year, Diana said if Trump stays for another term it’s only uphill from here. “If he gets re-elected for another term, it’s unlikely that he will change the way he does things,” the manager explained. “To put it bluntly, it cannot get worse than what we have right now.”
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Despite these two ‘blips’, Pictet Global Environmental Opportunities outperformed by a decent margin in other years and is ahead of both its average IA Global peer and its MSCI World index benchmark over five years, as the below chart shows.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Diana argued that the fund has outperformed in the face of Trump’s administrative barriers because changing investor mindsets are creating powerful tailwinds in favour of environmental stocks.
“We have a really core belief here that providers of environment for solutions will outperform the market and the basic reason is that they will benefit from tailwinds,” Diana said. “Tailwinds that come from much more awareness on environmental issues, a different attitude of consumers of the young generation and also more favourable policy.”
While the Trump administration has rolled back some of the US environmental efforts, Diana does not see this happening forever as eventually a new president will come to power.
“The US is moving in a direction which I think is against the tide,” Diana said.
“Trump may be re-elected but in five years, six years or 10 years I do see the United States playing a key role like other regions in the world - in moving towards more environmental protection. Because ultimately, its citizens are not stupid. They cannot accept the lies for too long: when sometimes Trump talks about the best air and the cleanest water in the world, that is not true.”
Pictet Global Environmental Opportunities uses a global, unconstrained equity strategy that incorporates a scientific framework called ‘Planetary Boundaries’. This identifies nine key environmental dimensions – chemical pollution, climate change, ocean acidification, ozone depletion, the nitrogen & phosphorus cycle, freshwater use, land-system change, biodiversity and aerosols – that influence the biosphere and help identify the fund’s 400 stock investment universe.
Pictet Global Thematic Opportunities’ Planetary Boundaries framework
Source: Pictet Group
As the fund looks for companies that provide solutions to these challenges and while operating in a way that limits their impact on the problems they’re trying to solve.
“Immediately, by taking this approach, we stay away from the oil & gas sector, we stay away from the mining sector, from the heavy industry and from the chemical sector,” Diana added.
The manager added that he is optimistic about the future as peoples’ continue to move towards greener choices in their own lives, but stressed that the investment world will play an active part in this journey.
“We have a role to play in influencing people's behaviours but we cannot act like Greta Thunberg. In my opinion she’s doing a great job for what she is but we can direct capital to where it matters,” Diana finished.
“We can make sure that the technology innovation ends up being a big role and for that I'm a concerned optimist when it comes to the environment. I'm concerned because I see the seriousness of the challenges that we're facing, but I'm also optimistic because I see what our companies can do.”
Pictet Global Environmental Opportunities has an ongoing charges figure (OCF) of 1.16 per cent.