The Impax Global Sustainable Infrastructure Fund's performance in the third quarter of 2025 lagged behind its benchmark, the FTSE Global Infrastructure index. This shortfall can be attributed to the fund's investment strategy, which prioritizes defensive growth, at a time when broader equity markets experienced a significant rebound. Both the specific company choices and the distribution of investments across different sectors contributed negatively to the fund's returns. However, the impact of exchange rate fluctuations on the portfolio was negligible.
Looking forward, the fund is strategically positioned with a high active share, indicating a strong deviation from its benchmark, and an emphasis on companies expected to deliver superior earnings growth. The investment approach focuses on identifying undervalued businesses with compounding potential and those poised to benefit from long-term, secular growth trends within the sustainable global economy.
Understanding Q3 2025 Underperformance
In the third quarter of 2025, the Impax Global Sustainable Infrastructure Fund did not meet the performance of its FTSE Global Infrastructure benchmark. This was largely a result of the fund's defensive growth investment philosophy failing to capitalize on the robust recovery seen in global stock markets during this period. The fund's strategic allocation towards more stable, less volatile assets, while typically beneficial in uncertain times, proved to be a drag on performance when market sentiment turned bullish. This highlights a common challenge for funds with a specific investment style: periods where the broader market deviates from that style can lead to relative underperformance. The careful selection of individual stocks and the broader allocation of capital across various economic sectors both played a role in this quarter's disappointing results. Despite these headwinds, currency fluctuations did not significantly affect the fund's overall returns, indicating that the core investment decisions and market dynamics were the primary drivers of performance.
The fund's underperformance stemmed from two key areas: stock selection and sector allocation. Within the Industrials and Utilities sectors, specific stock choices proved detrimental to returns. For example, some companies held by the fund in these sectors may have faced unexpected operational challenges or missed earnings expectations, directly impacting their share prices. Simultaneously, the fund's overweight positions in Real Estate and Health Care, while potentially sound long-term strategic choices, did not generate the anticipated returns during this quarter. This suggests that these sectors, despite their inherent strengths, might have experienced a period of slower growth or investor disfavor compared to other market segments that performed strongly. Conversely, the Financials sector provided some positive contributions, partially offsetting losses from other areas. This mixed performance underscores the complexities of managing a diverse portfolio and the continuous challenge of balancing growth opportunities with risk management in an evolving market landscape. The fund's focus remains on identifying and investing in companies that align with the transition to a sustainable global economy, anticipating that these long-term trends will eventually translate into superior risk-adjusted returns.
Strategic Positioning and Outlook
For the fourth quarter of 2025, the Impax Global Sustainable Infrastructure Fund is strategically structured with a high active share exceeding 88%. This indicates a significant divergence from its benchmark, reflecting a concentrated portfolio of convictions rather than broad market replication. The fund is positioned to achieve higher anticipated earnings growth compared to its benchmark, signifying a belief in the strong underlying fundamentals and growth trajectories of its holdings. Furthermore, the fund currently trades at a 19% premium in terms of its price-to-earnings (PE) ratio, suggesting that the market values its selected companies more highly due to their growth prospects or quality. This strategic approach emphasizes investing in undervalued compounders—companies with consistent, long-term growth potential that are trading below their intrinsic value—and capitalizing on secular growth opportunities that are driven by enduring macroeconomic and societal trends, particularly those linked to sustainability.
The fund's forward-looking strategy is deeply rooted in its core philosophy, which acknowledges the profound influence of global sustainability challenges on capital markets. Impax believes that addressing issues like climate change, pollution, and the imperative for investments in human capital, infrastructure, and resource efficiency will fundamentally reshape economic landscapes. This transition is expected to create substantial growth avenues for companies that are well-aligned with these shifts, while simultaneously posing significant risks for those that fail to adapt. By focusing on these transformative trends, the fund aims to identify and invest in businesses that are not only resilient but also poised for long-term expansion due to their contributions to a more sustainable global economy. The investment team's dedication to sustainable development underscores their commitment to generating strong risk-adjusted returns by leveraging these powerful, long-term drivers of change across various asset classes.
