This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

Manulife Investment Management (M) Bhd’s (Manulife IM) Manulife Global Aqua Fund, which has carved a niche for itself with its focus on the global water value chain, clinched the top awards for best impact in the basic needs and resource security fund categories at The Edge Malaysia ESG Awards 2023.

It is the first unit trust fund of its kind in Malaysia, investing in companies involved in the water value chain, including water treatment, distribution and technology, according to the asset management firm.

The fund targets companies at the forefront of addressing key global challenges, such as water contamination and infrastructure sustainability. This is reflected in its portfolio choices, which include leading consultants, laboratories and water treatment providers.

At least 85% of the fund’s net asset value (NAV) is invested in the BNP Paribas Funds Aqua fund, which is managed by Impax Asset Management Ltd.

Despite the recent market downturn, which affected share prices, Manulife IM CEO Jason Chong says the group has maintained a steadfast long-term investment strategy, focusing on water distribution and infrastructure, treatment and efficiency, and utilities.

Higher interest rates resulted in expectations of weaker economic conditions, impacting the more cyclically exposed companies, while defensive regulated utilities were affected by investors’ preference for higher-yielding bonds, he says.

“Nevertheless, our focus for the target fund remains to allocate capital across distribution and infrastructure, treatment and efficiency, and utilities over the long term. The themes driving the earnings of these companies will unfold over a multi-year period, so the recent volatility has offered some good buying opportunities.”

Over the past year, Manulife IM has fully integrated ESG considerations into its investment process, which required coordinated efforts involving global and local collaborations for a standardised approach to ESG investing, says Chong.

These considerations include the characteristics of the asset class and investment process in question, as well as the industry and geography. The company believes solid ESG practices can be beneficial and result in better financial performance.

Chong sees positive performance ahead for the fund amid increased infrastructure spending and regulatory developments, which will be material tailwinds for the companies in the target fund.

“For example, the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS (Creating Helpful Incentives to Produce Semiconductors and Science) Act in the US have more than US$100 billion earmarked to improve water infrastructure, reduce water contaminants and protect against drought, heat, floods and wildfires. The US Environmental Protection Agency recently estimated that US$625 billion of drinking water infrastructure investment is needed over the next 20 years,” he says.

Chong also points to the regulatory drive around polyfluoroalkyl and fluoroalkyl substances, known as forever chemicals, which continues to gain momentum on both sides of the Atlantic.

“At the target fund’s portfolio level, earnings expectations continue to move upwards and remain ahead of the broader market. Although the impact of potentially slower economic growth over the next year or so remains to be seen, the investment team believes the long-term drivers for the theme and target fund remain in place,” he says.

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