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December 2022 Newsletter

The Climate Impact Asia Fund

In collaboration with WWF-Hong Kong

For professional and accredited investors in certain jurisdictions only. If you have received this communication in error, please click the unsubscribe link at the bottom of this email.

Monthly Commentary

The Climate Impact Asia Fund declined by 5.8% in December 2022, underperforming the FTEOAP index by 1.6%, and many of the regional Asian equity indices. This was due to strong performance from China, as the reopening of the country led the Hang Seng and HSCEI indices to rise by 6.4% and 5.2%, respectively. The MSCI APAC index was largely flat at -0.4%, while the MSCI EM index was only down by -1.6%, due to its heavy large-cap component weighting in China which was the outperformer in December. Meanwhile, the Kospi fell by 6.6%, largely due to the less positive sentiment on Samsung Electronics

and the increase in nickel prices as the Russia-Ukraine conflict escalated.

Performance Review

The fund suffered from the underperformance of its Korean equity holdings, due to the surge in nickel futures (19% increase in December, following a 12% increase in November 2022) caused by the escalation of the Russia-Ukraine conflict. This resulted in a 19% increase in December, following a 12% increase in November 2022. LG Energy Solution and Samsung SDI, the two battery makers held by the fund, saw losses of 23% and 16%, respectively, resulting in a 1.7% loss for the fund. Additionally, Renova, a solar farm operator in Japan, saw a 9% decrease in the same month due to Japan's decision to switch back to nuclear energy. As this indicated a less bullish outlook for Renova, we exited this position as the downside could be greater in the coming months.

The fund's top performer was Vitasoy, as the company's China operations are recovering, aided by the reopening story, which increased its share price by 13%, contributing 45bps to the fund. Delta Electronics, an EV and renewable energy player in Thailand, rose 25% after being included in the SET50 and SET100 indexes. Bangkok Expressway and Metro, which is plays on the low-emission tourism transport reopening, and Greatec, the fund's exposure to the EV parts supplier in Malaysia that was sold off a few months ago, also contributed significantly to the fund's performance, delivering better-than-expected results.

Due to the escalating tension in Ukraine with Russia, Energy management was the worst performing sector in December 2022, losing 4%, while other sectors did not make a positive contribution. This was likely due to timing issues. After strong performance in November from Greater China, the surge slowed, as some investors took profits due to worries about COVID cases in China.

Woody Biomass in Australia

On December 15, Australia became the first country to reject the idea that burning wood from native forests can be classified as a renewable energy source. This decision comes as other countries such as the U.S., Canada, Eastern Europe, and Vietnam are preparing to exploit their forests for wood pellets, which will be burned to generate energy for places such as the UK, EU, Japan, and South Korea. Meanwhile, in the EU, there are still efforts to have woody biomass stripped from its renewable energy designation, and to put an end to subsidies given to the biomass industry for wood pellets. Extensive research has now confirmed what WWF-Hong Kong, the fund's environmental consultant, had stated to us long ago over lengthy discussions during our investment advisory committee meetings: biomass burning emits more carbon dioxide per unit of energy produced than coal, presenting a challenge for policy makers attempting to reconcile different definitions of renewable energy when it comes to biomass.

China Reopening

Finally, in November and December 2022, the Chinese government surprised the world with a swift and short reopening process. This had short-term implications, as the massive increase in COVID infections was unavoidable. However, it was expected that all business activities should resume within one quarter. Unfortunately, there will likely be a high number of COVID casualties, which may cause displeasure among the global investment community.

In addition to the COVID reopening plan, the Chinese government has issued a number of policies to help boost the property market and stabilize the country's economy as it emerges from the pandemic. Xinyi Glass, a float glass and low emission glass maker in China, is expected to benefit from the recovery in the property market, and is trading at 8x forward PE with a dividend yield of 7%.

The SEC audit on Chinese ADRs has concluded, which means that Chinese ADRs should no longer trade at a deep discount, as the risk of delisting is no longer as great as it was before.

Interest Rates

In 2022, the Federal Reserve's view on inflation determined the fate of equity markets. As inflation did not cool off, the Fed kept raising rates, and the risk-off mode returned, putting downward pressure on risky assets, particularly EM equities. The US Dollar Index was the only sure bet in 2022 against many EM currencies. In Q3 of that year, the Fed mentioned that it could slow down the pace of the rate hikes, although Fed Chairman Jerome Powell repeatedly stated that the rate would stay high for a longer period as long as inflation stayed elevated.

Looking back at 2021, when inflation had already reached 8%, J Powell was reluctant to raise rates, as he wanted to ensure that the inflation was not transitory. We expect this attitude to carry into 2023, where rates will stay elevated until inflation has cooled for more than two quarters. Although this is technically still bearish for equities in general, there are a few reasons why we are more upbeat for 2023.

2023 Opportunity

We believe that economic growth will come back on track in 2023 and China’s reopening will be one of the biggest themes for the year, with impacts ranging from tourism to the increased supply of goods, including chips, that have curbed auto sector growth.

The Chinese reopening is also a positive for some Japanese companies, such as low emission transport operators and efficient energy producers. Furthermore, the conclusion of the Chinese ADR audit by the SEC means that the delisting overhang has been reduced, and some Chinese ADRs that are trading at a very low valuation are expected to be re-rated.

In South East Asia, there are a number of interesting decarbonization companies that will benefit from the reopening play, such as tariff adjustments and more project completions, as well as the first installations of batteries and regional exposure that will lead to more project wins in the region.

Investing in the Asia Pacific region to mitigate the impacts of climate change is a crucial and necessary step. Climate change is already having a significant impact on the region, and investments in infrastructure and sustainable development can help to reduce the risks associated with climate change. Such investments can also create economic opportunities and help to ensure the region's continued prosperity and stability. By investing in The Climate Impact Asia Fund, we can help the Asia Pacific region make a significant contribution to global efforts to limit the impacts of climate change.

The time to act is now.

Alexander Kalis

Portfolio Adviser

Managing Partner

Milltrust International London

Henry Soediarko

Portfolio Adviser

Director

Milltrust International Singapore

Factsheet

DEC 2022

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Sustainable Impact Report

3Q 2022

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WWF-Hong Kong

The Climate Impact Asia Fund supports WWF-Hong Kong's conservation programmes in Asia through meaningful donations from the fees it receives.

5 ways WWF helped fight the climate crisis in 2022

By WWF, 28 December 2022

The climate crisis grabbed headlines in 2022 both in terms of impacts and solutions, culminating in the international climate talks in Sharm El-Sheikh, Egypt, where we saw some wins and yet still didn’t go far enough to reach our goals.

Pushing policy forward

In 2022, we saw the hard fought but unexpected triumph of the Inflation Reduction Act, signed into law by President Biden in August. This is the most significant climate legislation in a generation, supplying close to $400 billion to promote renewable energy and electric vehicles, boost clean energy manufacturing, and advance climate justice by investing in communities disproportionately harmed by climate change along with leveraging the ecosystems they depend on. By enabling the reduction of a billion tons of carbon dioxide through a combination of avoiding emissions and carbon interventions, the Act will give the US a fighting chance at keeping emissions at a level that would avoid the most catastrophic climate impacts.

Implementation in the corporate community

With its founding role in the Science Based Targets Initiative, a collaboration that helps companies set emission reduction targets in line with climate science, WWF has long been involved with efforts to promote target-setting for the private sector. In 2022, that work was expanded with the creation of science-based net zero targets for landowners through the Forests, Land and Agriculture targets initiative. WWF’s position as a trusted voice advocating for sustainability with the corporate sector also led to the creation of the Climate Business Network, a network of companies looking to share knowledge and discuss obstacles to reaching net-zero climate targets. In the industrial sector, the Renewable Thermal Collaborative released its game-changing Vision Report. The report, created in partnership with the consulting group BCG, provided first-of-its-kind insight into exactly how to achieve quick wins in six different segments of heavy industrial emissions by examining specific industrial processes, their temperature needs, and available technologies.

COP27: International climate talks

WWF was well-represented at the 2022 United Nations Climate Change Conference, or COP27, participating in scores of events, including creating an action center for America Is All In, the largest coalition of non-federal climate leaders in the US. While WWF’s participation was robust and successful, the overall outcomes at COP27 were a mix of successes and frustrations. On a positive note, historically high-emitting countries agreed to a new funding vehicle to address loss and damage in developing countries. On the other hand, there was a general lack of commitment to ambitious mitigation targets. WWF will be in Dubai next year at COP28 to continue to advocate for ambitious climate action at all levels.

America Is All In

America Is All In also released a new analysis showing how an all-of-society climate strategy can enable the US to meet its 2030 climate target. This is in addition to its campaigns on encouraging green buildings and climate smart transportation, and its storytelling initiative – showing how All In members are stepping up to the challenge of climate change.

Adaptation and resilience

In 2022, a report from the Intergovernmental Panel on Climate Change, the United Nations body for assessing the science related to climate change, confirmed that climate risks to people and nature are worse and increasing faster than anticipated. To address this growing challenge, WWF saw major investments in its resilience programming this year. Apple made a major commitment to WWF’s Climate Crowd to help vulnerable rural communities adapt to climate change and reduce pressure on nature. USAID is providing $2 million to support environmentally responsible disaster management in Fiji and Madagascar, while a partnership with OECD is helping the Philippines and Indonesia integrate climate risk management and natural capital into infrastructure planning. And The Coca Cola Company has renewed its commitment to invest in building landscape-level resilience in Mexico and Pakistan.

As 2022 winds down and 2023 begins, WWF’s climate team remains determined and will continue to look for the strongest ways to make progress and raise ambition alongside our partners. Climate change is a planet-wide problem and the solutions require all of us to be engaged. We must address the climate crisis together, and we must do it now.

Introductory Video

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The Climate Impact Asia Fund SP is a long only impact investment strategy with a comprehensive ESG overlay, investing in the leading Asia Pacific-listed companies that are involved in activities which enable the adaptation to, or mitigation of, climate change, and the transition to the low carbon economy.

As a secondary impact, a significant share of fee revenues from the Fund is donated by the Investment Adviser to WWF-Hong Kong's biodiversity and species extinction-focused conservation programmes in Asia.

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Disclaimer

For professional investors only. This document is strictly private and confidential and is issued by Milltrust International LLP, incorporated in the United Kingdom, which is authorised and regulated by the Financial Conduct Authority. Milltrust International LLP has its registered office at 5 Market Yard Mews, 194-204 Bermondsey Street, London, SE1 3TQ, United Kingdom and is a subsidiary of Milltrust International Group (Singapore) Pte Ltd. None of the investment products mentioned herein are regulated collective investment schemes for the purposes of the UK Financial Services and Markets Act 2000. The promotion of such products and the distribution of this document are, accordingly, restricted by law. Most of the protections provided by the UK regulatory system and compensation under the UK’s Financial Services Compensation Scheme will not be available. The investments described herein are only available to investors permitted to invest in the prospectus of the fund and are not available to private investors. The nature of the fund investments carries certain risks and the Fund may utilise investment techniques which may carry additional risk. The value of investments and the income from them may fall as well as rise and is not guaranteed. Past performance is not a reliable indicator of future performance. This document contains forward-looking statements which are correct as at the date of this document. Such statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance or projections to be materially different from future results. Any investment in the funds mentioned above should be based on the full details contained in the relevant prospectus and supplements which are available from www.milltrust.com. WWF® and ©1986 Panda Symbol are owned by WWF. All rights reserved.

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