One of the least invested topics of the world goals set by the United Nations is “life in the water”. With the ocean responsible for every second breath we take and more commitment from the European Commission on this SDG in the offing, things might be about to change, according to Paul Buchwitz, who manages the DWS Concept ESG Blue Economy equity fund.
The fund focuses on the protection of oceans and therefore invests in companies that contribute to this and in companies that can make significant improvements in this area.
The interview with Buchwitz took place on the day that the fund, which was launched in March, has passed the EUR 100 million mark in assets under management. The manager said he preferred not to talk about short-term returns, partly because, according to him, this is a fund that investors hold for the long term and because a thematic fund such as this can deviate from the broad market in the short term. However, he said that the fund that mainly invests in cyclical companies has so far followed the market reasonably well since its launch in April.
More important, Buchwitz said that he believed, is the potential that investing in the ocean offers. “SDG 14, life in the water, is one of the least invested topics of all SDGs and is not on the radar of many investors. I strongly believe that is starting to change. This issue could make the same move as the water industry, which was one of the best performing sectors against the broad MSCI World index this year and has also outperformed the market over the past five to 10 years.”
Every second breath
This interest will increase, he said, if the European Commission focuses more on reducing the use of antibiotics in animals. ”The influence of the ocean on the world is vastly underestimated,” said Buchwitz. “The ocean is responsible for every second breath we take. When that realisation dawns, companies that focus on it will get more attention from investors.”
In the short term, he said that he hopes to benefit from the fund’s emphasis on cyclical companies and companies from Europe, also because of a possible correction in US companies. “My view of the markets is constructive. Prices have already risen very sharply. Especially in the United States, I would not be surprised if a correction follows.”
European shares have more room to grow for him. Reason for the investor to be currently overweight European equities, on top of the fund’s natural preference for Europe. Sectors and companies that have an impact on the ocean are mainly located in Europe.
Together with WWF
Examples of portfolio companies include offshore wind energy companies, the aquaculture sector and marine tourism companies. So are these companies so good for the ocean? “No,’ Buchwitz responded, “but unlike many ESG funds, we do not want to focus only on the companies that are already doing well within our chosen theme, but also allocate assets to companies that depend on the ocean and have a negative impact on this ‘blue economy’”.
The fund managers want to reduce the negative impact of these types of companies, by getting them to reduce their CO2 emissions or fish consumption, for example. The solution lies in engagement, whereby the fund managers first ask about the status quo for three to five companies in the portfolio. Via the very detailed questionnaire, they want to know, for example, which type of antibiotics a farm administers to its animals, and how much.
In order to properly assess the answers and link them to appropriate targets, they then review them with a WWF expert. The WWF also helps the fund managers with the monitoring. An intensive process that requires a lot of work, according to Buchwitz.
If things are not moving in the right direction, there are all kinds of sanctions that the managers can impose. Buchwitz explained the options: “Such as speaking at shareholder meetings and voting (proxy voting). If a company really doesn’t want to move and has a very large shareholder, for example, which means we don’t have a chance, getting out may also be an option. But that is not our approach. Our goal is to transform.”
Source of return
If a company improves in terms of ESG, this can be a source of return, the manager argued. “We aim for positive impact, but at the end of the day we are of course an investor and we want to get a good return. And we can also root for a company: if you move in the right direction, we will increase our weighting in your company.”
About 40 per cent of the portfolio goes to these types of companies that can still improve when it comes to the blue economy. The remaining 60 percent of the portfolio’s assets goes to companies that offer solutions that are already helping the ocean move forward. Some companies are obvious, such as those that can filter polluted water or producers of alternative fish feed. “But it is broader than you might think,” said Buchwitz. “A manufacturer of drainage systems that makes extensive use of recycled plastic is also an investment opportunity. The less plastic, the less it ends up in the sea.”