Keep in mind that our commentary on the fund, as well as its past performance, is not a guarantee of what will happen in the future. It is also not financial advice - you should consider talking to a professional adviser if you're not sure whether an investment is right for you.

These investments are designed to be held for the long term. Like all investments, your money is at risk - investments can go down as well as up, currency fluctuations can affect the value of your investment, and you may not get back what you put in.

Fourth quarter market overview and current economic outlook

Global equity markets showed modest growth in Q4 2024, as the MSCI World Index increased, driven mainly by the continued strength of the US dollar. Early in this quarter, investors were cautious due to uncertainties surrounding the US election and concerns over the extent of the Federal Reserve's rate cuts. However, the November election of Donald Trump boosted optimism, particularly in US markets, with expectations for tax cuts and deregulation. Outside the US, markets were less optimistic, especially with fears over potential US import tariffs. Business surveys revealed the US economy outperformed others, while the eurozone, UK, and Japan showed signs of stagnation. Manufacturing Product Manager’s Index (PMI) for major economies ended the year in decline, but the eurozone's services PMI improved.

Central banks and bond yields

The Federal Reserve, European Central Bank (ECB), and Bank of England (BoE) all cut rates in Q4, but their outlooks were varied. The Fed suggested fewer rate cuts in 2025, while the ECB lowered its growth forecast due to possible US tariffs. The BoE kept rates steady in Q4, concerned about inflation. Bond yields rose across major economies, especially in the US and UK, due to inflation fears and reduced recession fears.

Inflation outlook

Inflation has been falling in the eurozone, UK, and US and is expected to continue. The eurozone is close to its 2% target, with core inflation at 2.7% and still dropping. In the US and UK, core inflation is higher but should decrease slowly. Risks to inflation include global issues like political instability and trade, which could cause supply shortages. In the eurozone and UK, lower spending will keep inflation and economic growth slow.

Economic growth to stay low

We expect some small improvement in the economy in the eurozone, but it will still be lower than historical standards. The rate cuts in Europe should help support growth. In the US, the economy is still strong, but growth is expected to slow in 2025, though the US will still grow faster than other regions. Although the UK has started to recover from low growth in 2023, growth will remain low in 2025. In Japan, we saw little growth in 2024, but a stronger rebound is expected in 2025.

Performance update

This quarter, impact-focused strategies faced challenges, with mid and small-cap stocks lagging behind their larger counterparts. A significant market theme in October was the potential election of Donald Trump as U.S. president, which pressured renewable stocks but boosted energy and banking sectors. After Trump's November victory, this trend continued, leading to underperformance for renewable investments like First Solar, Nordex, and Acciona Renovables. Conversely, industrial sector holdings, such as Acuity and Mueller Water, benefited from the political landscape.

The best-performing sectors during the quarter were Financials and Energy, where the fund has no exposure due to its strict impact criteria. One of the highlights for the fund was Planet Fitness, its largest holding, which reported strong results and upgraded its full-year outlook. BESI also performed well following several broker upgrades. However, stocks like Universal Display and Advanced Drainage Systems underperformed due to slightly lower revenue guidance.

Despite these challenges, the fund delivered positive performance in 2024, with an attractive valuation and positive prospects for 2025. The fund's largest sectors remain Industrials, Consumer Discretionary, and Information Technology, while it maintains no exposure to banks, insurers, energy, or real estate.

Return

Calendar year return

As of 31/01/2025

Calendar year return

Investments which contributed to performance

Planet Fitness: One of the best performing stocks during the quarter was the biggest holding in the fund, Planet Fitness. It reported solid results and upgraded its full-year outlook.

DS Smith: They will be acquired by International Paper in an all-share deal expected to close in Q1 2025. International Paper shares rose sharply after better-than-expected figures, resulting in another share price boost of DS Smith.

Meidensha: One of Meidensha’s clients, Nissan, is merging with Honda, potentially leading to more turnover for Meidensha in its EV Motor business.

Investments which detracted from performance

Universal Display: The company reported better results than expected but slightly lowered its 2024 sales guidance as its mobile phones end market weakened.

First Solar: The renewables industry in general was under pressure as President Trump’s victory became apparent. First Solar slightly lowered its full-year guidance as a result on supply issues.

Advanced Drainage: Their full-year outlook was slightly downgraded because the recovery in non-residential demand is taking longer than expected. However, this company is still a strong long-term investment.