Notes from the Investment Floor: The mood music is starting to lift
Jon Wallace looks at the impact that a moderation in inflation, and structurally higher energy prices, are having on environmental solutions businesses.
![Jon Wallace Jupiter Fund Manager, Environmental Solutions](https://www.jupiteram.com/uploads/2021/01/0d8cba23b74667827d1432bd5b788ebd/jon_wallace_350x350.jpg?r=a3f471b7236cb6fc6c2d5ed8bbdcdfee&v=1678122724)
It is no secret that inflation is starting to moderate, but it has been interesting to hear first-hand from companies, as we engage with them, about the impact this is having on their businesses. The story we’re hearing is one of overall decelerating inflation across the remainder of this year, if not outright deflation, although wage inflation pressure is something that companies are still having to grapple with.
Importantly, the growth picture is looking positive for the sort of environmental solutions companies that we look, particularly in energy efficiency applications where payback periods (the length of time it takes for efficiency gains to pay for the initial cost of the capital investment) have in some cases halved as energy prices have risen. The reopening of China is also a positive for business across various sectors, as previously mothballed parts of their supply chain come back online, and environmental solutions companies are no different in that regard.
In our strategy’s investment universe, we’re in the relatively fortunate position of not having very many business that are directly exposed to the consumer, it tends to be a more business-to-business world. Nevertheless, the perception of the impact of the higher cost of living on reduced consumer spending does seep out to various parts of the wider economy, for example we’ve noticed that companies that feed into the automobile supply chains have been hit by reduced demand, and any company that issues reduced earnings guidance is still being hit hard by the market.
The reality has yet not been as bad as the most dire forecasts were predicting, however. The ‘yet’ is very important in that sentence, as it’s unwise to become complacent, but there’s definitely a growing feeling at the moment that the negativity surrounding the consumer in Q3/Q4 last year may have been an overreaction and I think it’s interesting to note the shift in mood.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This document is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors, except in Hong Kong. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK.
*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore. 220