Impax Environmental Markets (IEM) is a strongly performing investment trust, which invests in small and mid-cap stocks around the world that in the managers’ view fit an “unambiguous” long-term growth story. The investment thesis rests on the ever-increasing focus on resource efficiency and ever tighter environmental regulations applied around the world. The managers believe they better understand the impact of new regulations and new technologies than the generalist competition and seek to exploit their edge in the energy, water, waste & resource recovery, and food and agriculture sectors. As such they aim to be ahead of the curve when new investment themes arrive on the horizon for more mainstream managers. As we discuss in this article the world continues to electrify. Impax’s portfolio is positioned to benefit from major themes such as the rise of electric vehicles (EVs), and energy efficiency. Within EVs, IEM has nearly 10% of NAV exposed to critical components within the EV supply chain, which the managers believe have a durable competitive advantage and more attractive valuations than the likes of Tesla. 37% of the trust’s portfolio is invested in “energy efficiency”. This encompasses companies in a wide range of areas including hardware and software as well as power networks and industrial automation. IEM has outperformed the MSCI AC World index for the past three calendar years, and over five years has outperformed the average global investment trust and open-ended fund, as well as the MSCI AC World index. The managers believe that much of the outperformance has come from portfolio earnings growth being ahead of the wider market. Over the shorter term, performance had been strong in absolute terms until the market wobbles at the end of January. The team tell us that the majority of the underperformance relative to the benchmark so far in 2018 is due to IEM’s water utilities exposure, as well as not having any financials in the portfolio. IEM has experienced a dramatic rerating over the past six months, on the back of the strong performance that the managers have delivered over the last three years. The discount of 6.6% is narrower than the 10% level that the board have historically targeted, but wider than the 3.6% average discount for global investment trust peers. The portfolio has a cyclical tilt, which introduces some risk according the trajectory of the global economy. However, the managers remain optimistic on their companies continuing to deliver stronger earnings growth than the wider market, and expect continued M&A activity within the sectors they favour.