Millions of people across the globe are going plastic free this month, as they bid to tackle the over-reliance on single-use plastic.
The initiative has had a dramatic rise in prominence since 2011, when it was launched by Rebecca Prince-Ruiz, founder of the Plastic Free Foundation, and a small team in local government in Western Australia.
Last year, it was estimated as many as 120m people took part in the initiative – with 90 per cent of those making permanent changes beyond July.
The problem is clear. In 1950, the world’s population of 2.5bn produced 1.5m tons of plastic, according to marine conservation charity Surfers Against Sewage.
In 2016, a global population of more than 7bn people produced more than 320m tons of plastic, according to the same charity. This is set to double by 2034.
We like the labour-intensive process behind this fund to find those hidden successes in the small and mid-cap sectors.One of the top holdings in this week’s best in class is Aptar, a 21-year position in the Hermes US Smid Equity strategy.
Aptar specialise in packaging closures – effectively the dispensing mechanism of a bottle. Think caps, sprays and lids.
Speaking to me recently, fund manager Mark Sherlock mentioned that 7bn water bottles are opened every day and only 1bn are recycled.
He says: “Think of a typical Coke can, the closure remains with the can, but that is not the case 99 per cent of the time with water bottles – and the most polluting piece of litter found on the beach globally is these plastic water bottle caps.
“Aptar, have come up with what they call a ‘stay-with’ cap, which – as the name suggests – means the cap stays with the bottle. They’re also looking into minimum standards of recycled plastic for inclusion in their bottles and so on.”
Mr Sherlock was originally co-manager on the Hermes US Smid Equity fund when it launched in September 2012 and became lead manager in October 2013.
He joined Hermes in 2005, having previously worked for PwC and Rio Tinto.
The fund invests in US small and medium-sized companies valued between $1bn to $20bn – with the managers favouring the low end of the mid-cap space.
This is a pure bottom-up equity fund.
The team start by looking at the Russell 2500 index and removing any highly indebted or capital-intensive companies.
They look for businesses with products or services that are genuinely differentiated and exhibit a durable competitive advantage.
The businesses themselves will need to have strong balance sheets, demonstrating stable earnings with sustainable growth.
As part of this process, the team will use ‘Piotroski scoring’ and the S&P quality ratings to contrast their analysis against market consensus. This element of highlighting quality is key to risk management.
This all helps them build a watchlist of roughly 250 stocks and they will then start to meet company management.
They will put stock ideas into their in-house valuation model, forecasting future finances as far as 10 years out, to create an intrinsic value of a stock today.
The managers want to see the potential for at least a 20 per cent increase from the current share price over a three to five-year holding period.
An environmental, social and governance screen is the final stage of building the 60 to 90 stock portfolio. Average position sizes will be around 1.5 per cent.
The team believe the best way to make money is to lose less when the market falls and to keep up when it rises.
Against a market notoriously difficult to beat, the team have built a strong track record, with the fund returning 100 per cent over five years, compared with 91 per cent for the Russell 2500, according to FE Analytics data showing total returns in sterling, for the five years to July 3 2019.
We like the labour-intensive process behind this fund to find those hidden successes in the small and mid-cap sectors.
The process is understandable, explainable and repeatable and a key differentiator is the strength and depth of the whole investment team.
It is a strong option for investors who have struggled to beat the market in the US.
Darius McDermott is managing director of FundCalibre
