Impax Environmental Markets (IEM) seeks to invest in companies which will profit from the transition to a more sustainable economy; a concept that is now firmly accepted but has not always been. Underpinned by strong earnings growth from the underlying portfolio, NAV performance has been strong historically. Over five years the trust has delivered NAV total returns of 82%, compared to the MSCI ACWI total return of 70.7%. 2020 has been something of a rollercoaster ride, and IEM has not been exempt from the impact. The managers note that the trust’s underperformance during February and March was due largely to small and mid-cap exposure; but also to cyclical exposures in locked down industries, especially automotive, as well as underweight healthcare and the US dollar. Positives have been the exposure to renewables, software and energy efficiency. As we note in the Portfolio section, lessons learned from managing the trust over the past 18 years have enabled the team to hold their nerve in the volatile conditions, and helped the trust to rebound more strongly than the market. IEM’s portfolio has a definite growth bias. However the managers are valuation-driven in their stock picking approach. The market volatility enabled them to initiate positions in several new companies, which previously had valuations that the team considered too rich. A combination of new holdings, as well as sticking to fundamentals, has enabled IEM to bounce back strongly – which we discuss in the Performance section. The managers believe that COVID-19 provides more long-term support for environmental protection, as demands for ‘Building Back Better’ seek to embed low carbon energy systems and cleaner air in cities.