Nanuk Asset Management announces their performance summary for the fund as at 28 February 2014

The Fund reported a loss of -1.5% in February, its first monthly loss since July 2013. This has resulted in a 1-year rolling return of 25.1% with a corresponding 1-year volatility of 9.9%

Despite ending the month positive on the long book, the Fund’s overall negative performance in February was driven by our continuing overweight exposure to Asian markets and slight underweight exposure to the US market, in addition to losses on the short book across both stock-specific and hedging shorts.   We continue, however, to maintain a high level of conviction in Asia, particularly across those Hong Kong-listed Chinese stocks within renewable energy, natural gas, water treatment and pollution control involved in rectifying China’s serious environmental challenges.

For a more detailed review of the Fund, and some additional comments on the Fund’s use of short positions, please see the attached Monthly Report – February 2014.

Another piece of news we wish to share is that the Fund has recently been renamed the Nanuk Global Alpha Fund.

The reasons for this are twofold. First and foremost, we believe the Nanuk Global Alpha Fund more accurately reflects the performance objective of the strategy, which is to generate alpha for our investors. Secondly, we believe it better reflects the steady growth of our investable universe from an initial relatively narrow clean energy focus to the much wider, more diverse array of companies that we now cover, which, in addition to clean energy and energy efficiency related stocks, now includes companies involved, both directly and indirectly, in water, waste and pollution, agriculture and advanced materials.

Given the change of the Fund’s name, it is worth taking a look back at how our themes and investment universe have evolved over time. When we launched our business in 2009 we assembled a universe of stocks positively exposed to a number of long-term drivers we saw as impacting the world at the time. These drivers, or mega-trends as they were often referred to then, were centred around environmental sustainability – the concept that increasing populations, economic growth, the rise in living standards and increasing urbanisation are placing immense pressure on available finite resources, causing serious pollution problems and contributing to climate change. Our thesis was (and remains) that these factors are transforming a number of the largest and most important sectors in the global economy – in particular, energy, water and agriculture – and that companies exposed to this change will undergo great changes themselves, providing an excellent investment opportunity for those with a superior focus, knowledge and understanding of the complex technological, regulatory and commercial environment those changes create.

We focused the selection of our initial investment universe around energy, the sector most impacted by the trends identified and presenting the largest set of tractable companies to examine. Our initial universe in 2009 carried a heavy emphasis on renewable energy and consisted of a little over 200 stocks with an aggregate market capitalisation of about US$400 billion, split roughly equally between North America, Europe and Asia. From there we looked further up and down the renewable energy supply chain at companies that, while not pure-plays, had a meaningful level of exposure to the themes we were following such that our knowledge and insight could contribute to investment outperformance. We quickly broadened our focus to reflect the transformation taking place across the entire energy industry, adding companies exposed to the transition to natural gas as a cleaner alternative to coal, gas and oil based fuels and those developing solutions to improve energy efficiency including in particular a large number of companies exposed to LED lighting. Other new themes added during this time included motor vehicle electrification, suppliers to a growing, more robust and smarter electrical grid and suppliers of advanced materials such as carbon fiber used to improve aerospace and automotive fuel efficiency. By the start of 2013, our investable universe had grown to a total market capitalisation of over US$1 trillion. While some of the expansion was iterative, much of it was organic, reflecting the role that innovation and investment in R&D has played in allowing technologies to achieve cost parity, opening up the vast un-subsidised markets and driving new business models.

In 2013 we notified shareholders of our intention to include water, waste, recycling, pollution control and agriculture in our investment universe. This was a logical move. While the themes are different, the drivers are generally the same – those regions implementing changes within their energy industry are more often than not experiencing similar pressures in these other areas. We are now investing across a universe of close to 600 stocks with an aggregate market capitalisation approaching US$2 trillion.

Reflecting on the universe we are struck by how much it has changed. Over the past 12-24 months in particular we’ve seen the emergence of trends we probably could not have contemplated when we started the business four years ago. For example, the largest solar company in our investment universe by market capitalisation, SolarCity Corp (market capitalisation over US$7 billion), neither makes modules nor builds large-scale projects, but is essentially a financier of residential rooftop systems, capitalising on the distributed generation revolution taking place across parts of America. We expect these changes to continue. Indeed we see the convergence of advanced software enabled industrial innovation with resource sustainability as one of the important next steps in this evolution. A recent addition, Trimble Navigation Limited, provides another good example of this. Trimble provides GPS based products designed to maximise productivity and efficiency for the construction, mining and agriculture industries. Its core products are incorporated in farm machinery to allow precision planting and harvesting using pre-programmed auto pilot steering, optimising fuel, seed and water use. Its GPS based products are now used in resources extraction and construction, where unmanned aircraft supply geospatial data used in the design phase of major projects. This data is then incorporated with GPS enabled equipment during the construction process, particularly for large-scale civil works, to improve fuel efficiency and conserve materials.

In our view there’s no question that continued innovation, and the business models it creates, will be a far more potent force than subsidies have been in driving greater the adoption of environmentally sustainable and resource efficient technologies. While there’s never been any shortage of interesting companies in our investment universe throughout the history of the Fund, we expect that it just keeps getting more interesting and diverse from here.

A paper more fully detailing the evolution of our universe is attached but should you require any further information regarding Nanuk, please contact me using the details below.

 

Regards,

Head of Sales and Investor Relations