Pearl Impact US - Q1 2021 Commentary

As an emerging, boutique ESG public equity investment manager with 24 years of sustainable investment experience we're proud to provide an investment performance update.

Q1 Commentary:

As a core investment manager, performance returns are not beholden to market factors. At PIC we build core portfolios consisting of sustainable companies with a track record of superior and consistent operating fundamentals. Furthermore, these businesses have positive attributes such as high market share, strong brand recognition, robust ESG characteristics, and must be pursuing growth opportunities. PIC portfolios are designed to produce healthy stock returns, with lower volatility, across market cycles, regardless of what factors are working at any given time. Core holdings are critical to the long-term performance of an investor's portfolio.

For the first quarter, the cyclical energy, financials, and industrials sectors – or the biggest underperformers of 2020 – soundly outperformed, while last year's leading technology companies lagged. This rotation coincided with a faster-than-anticipated vaccination program in the U.S., as well as an influx of estimates-topping corporate earnings and economic data.

PIC strategies outperformed their respective benchmarks during the first quarter as security selection drove returns. Around one-third of portfolio positions appreciated double-digit percentages, with smaller cap stocks leading the charge. Shares of Amerco rose 35% on strong fiscal third-quarter results, and Darling Ingredients increased 27% after winning approval to begin construction on a new renewable diesel plant in Port Arthur, TX. From a sector perspective, industrial and real estate stocks outperformed the most, while financials and materials stocks underperformed their global counterparts. Shares of Hannon Armstrong and Ball Corp gave back, down 12% and 9%, respectively, after posting strong returns in 2020. Lack of exposure to energy was a drag, as it was the best performing sector for the period. Geographically, North American and Asian market performance exhibited relative strength, while European portfolio stocks slightly underperformed. Longer-term returns remain above benchmarks for all PIC strategies.

Carbon emissions fell 7% in 2020, according to the Global Carbon Project, the biggest decline ever recorded. However, emissions in many industrialized nations are back to or above pre-pandemic levels, suggesting that not enough is being done to accelerate the clean energy transition worldwide. Growing while reducing carbon emissions enough to avert dangerous climate change will be tougher, but it’s beginning to happen.

In many cases, it’s cheaper and easier for corporations to market themselves as green rather than do the hard work of actually improving their sustainability profile. At PIC we have high expectations for environmental mitigation and improvement at the companies we invest in. We also have a low tolerance for greenwashing. Companies must effectively manage material environmental risks that may be unique to their industry to be considered in PIC portfolios.

Thank you for your trust and confidence. We believe that high-quality global leaders with high returns on capital and strong ESG characteristics will outperform in the long run. We will continue to search the globe for companies that exhibit such attributes for your portfolio.