equities
Navigating change: LOIM Natural Capital marks two years
From vaccination drives to aggressive interest-rate hikes, the macroeconomic and financial worlds have changed remarkably in the two years since we launched our Natural Capital Strategy. How have we adapted to market rotations and volatility, and how have progressive policies strengthened the natural-capital theme? With a focus on 2022’s challenges, here we provide a timeline capturing key insights into portfolio positioning and policy developments towards a nature-positive world.
|
Need to know:
|
|---|
Taking flight
Since the Strategy’s inception in November 2020, we have invested through diverse market terrain. From the time of Covid-19 vaccination drives, economic reopening and supply-chain disruptions to war in Ukraine, escalating commodity prices and rapid monetary-policy tightening in response to resurgent inflation, we have sought to adapt to market volatility and style rotations. At all times, we have focused on high-quality companies whose business models harness or preserve the regenerative power of nature.
In 2021, features of our portfolio positioning included smart-farming technologies, performance materials in commodity-exposed sectors, followed by exposures to more defensive areas across sustainable food systems and water solutions – with a consistent tilt to high-quality, attractively valued companies. This provided early evidence of how our focus on companies generating an excess economic return (EER) provides flexibility in portfolio construction, enabling us to navigate difficult, changing markets. With equal effectiveness, we seek growth and value stocks with strong financial cash flows, capital efficiency and a minimal dependence on external funding across market cycles.
Meanwhile, policy initiatives in 2021 continued to strengthen the natural-capital theme, including the Dasgupta Review on the economics of biodiversity and the drive to mobilise USD 10 billion of capital into environment-based economic opportunities through the Natural Capital Investment Alliance, of which Lombard Odier is a founding member.
In its first year, the Strategy outperformed its benchmark index by 7.1% in net annualised USD terms, and the market outlook for 2022 was constructive.2 Soon, however, expectations of a normalising post-pandemic economy changed into a far more challenging reality. How did we invest as inflation, war and an energy shock convulsed markets, and which policy moves advanced the natural-capital theme?
Timeline: our Natural Capital Strategy in 2022
Scroll down to explore the events of the past year
Marking two years
Since the inception of our Natural Capital Strategy, we have invested through a period of profound macroeconomic change and a range of market environments, from exuberant to bearish. Staying true to our focus on EER, we targeted high-quality companies while tilting to value or growth amid style rotations, and recently implementing a barbell approach to maintain exposure to both disciplines. In its second year, the Strategy returned -1.6% relative to its benchmark in net annualised USD terms and placed in the first quartile of its Morningstar peer group for the one-year period ending 31 October.1 Since inception, it has outperformed by 1.5%.2
Looking ahead
The outlook for the natural-capital theme remains attractive, in our view. Elevated commodity prices and the onshoring trend support the adoption of smart-farming, recycling and resource-efficiency solutions, and increase the appeal of cost-competitive biomaterials as incumbent inputs become costlier and harder to source. Amid increased infrastructure spending and demand for environmental remediation, which are not linked to the market cycle, we see investment opportunities among engineering, consulting and analytics firms with environmental expertise. These dynamics, combined with advancing policies for preserving and valuing natural capital, inform our constructive investment outlook for the Strategy.
Sources
1 Source: LOIM, Morningstar. Morningstar sector: Equity Ecology. The Morningstar Rating is an assessment of a fund’s past performance — based on both return and risk — which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2022 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee reliable indicator of future results.
2 Source: LOIM as at 17 November 2022. Performance shown is for the LO Funds – Natural Capital NA USD share class in net annualised terms. Inception date: 16 November 2020. Important information on performance: past performance is not a guarantee of future results. Where the fund is denominated in a currency other than an investor's base currency, changes in the rate of exchange may have an adverse effect on price and income. All performance figures reflect the reinvestment of interest and dividends and do not take account the commissions and costs incurred on the issue and redemption of shares/units; performance figures are estimated and unaudited. Net performance shows the performance net of fees and expenses for the relevant fund/share class over the reference period. Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
important information.
For professional investor use only
This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a marketing material and has been approved by Lombard Odier Asset Management (Europe) Limited which is authorized and regulated by the FCA. ©2022 Lombard Odier IM. All rights reserved.
