In the final quarter of 2025, the Impax Global Environmental Markets Fund saw a downturn in its investment performance, failing to match the gains of its primary comparative index, the MSCI ACWI. This underperformance was largely attributable to challenging conditions within the Materials and Industrials sectors. Nevertheless, as the financial community looks ahead to 2026, a sense of measured hope prevails, fueled by expectations of declining interest rates and robust governmental expenditure, which are poised to bolster the appeal of risk-bearing assets.
The fourth quarter witnessed a decrease in the fund's returns, trailing behind the MSCI ACWI index. This was mainly due to underperformance in companies within the Materials and Industrials sectors. A key factor contributing to this was the reduced volume in US residential construction, which particularly affected holdings related to energy-efficient HVAC systems and heat pumps. This period also saw a broader market shift away from defensive stocks, impacting the fund's overall performance.
Looking ahead to 2026, the fund is strategically positioned to leverage emerging trends, especially those driven by artificial intelligence. The focus is on what are often referred to as 'picks and shovels' investments, targeting companies that provide essential infrastructure and technology for performance efficiency and power management. These investments are crucial for meeting the escalating energy demands spurred by AI advancements and for upgrading existing grid infrastructure. This strategy aims to capture growth opportunities arising from the fundamental changes in global energy consumption.
To navigate market fluctuations and changes in sector leadership, the fund maintains a diversified portfolio with an emphasis on resilience. It holds investments in high-quality, operationally robust businesses operating in oligopolistic markets. Sectors such as Waste & Recycling and Industrial Gases are favored for their consistent demand and strong pricing power. These characteristics are expected to provide stability and sustained returns, even amidst economic uncertainties.
Overall, while the Impax Global Environmental Markets Fund faced headwinds in the last quarter of 2025, primarily due to sector-specific challenges, its forward-looking strategy for 2026 is built on capitalizing on technological shifts and maintaining a resilient portfolio structure. The fund's approach to investing in sustainable economy transition opportunities, particularly in areas like AI-driven energy solutions and defensive sectors, is designed to achieve strong risk-adjusted returns in the medium to long term.