The Pax Global Opportunities Fund (PXGOX) invests in companies that are positioned to benefit from the transition to a more sustainable global economy. The following are examples of companies in the Fund.
Jeronimo Martins (Consumer Staples, Portugal)
Jeronimo Martins is a well-run leading grocery retailer focusing on emerging markets including Poland, Colombia and Portugal. The company has a leading market share in Poland, largely through its discount chain, Biedronka, and stands to benefit from scale as its square footage growth increases. The product range of its stores typically includes a high proportion of fresh food and vegetables at affordable price points. The company is positioned to benefit in the short term from improving sales momentum in its core Polish market, while attractive long-term opportunities are presented by its expansion into Colombia. Certainly, the backdrop of the pandemic and consumers keen on ensuring their supply of food has been constructive for Jeronimo. The company should make further market share gains in its markets driven by a highly efficient grocery discounter business model. Jeronimo has effective policies and practices to address material risks such as product quality, safety, as well as labor management.
Lonza Group AG (New) (Health Care, Switzerland)
Lonza is a 112-year-old, $30B market cap company based in Switzerland and active in the Health Care sector. Lonza is the largest biologics contract development and manufacturing organization (CDMO) with the broadest offering and longest track record and is therefore well-positioned to benefit from the structural shift to large molecule drugs. The company offers custom chemical manufacturing and fermentation processing and produces organic substances, biocides and biotechnology products for the life sciences, pharmaceuticals, food, and agricultural industries. Lonza operates production sites in Europe, the United States and China. The company has transitioned from a chemicals company to the largest outsourced drug manufacturer, with roughly 80 percent of revenues stemming from healthcare-related products. Lonza stands to benefit from its solutions in accelerating the development of new biologic drugs and enabling biotech and biopharma companies to bring innovative drugs to market faster and at a lower cost.
ASML is part of the semiconductor equipment industry and spun off from the Dutch company Philips in 1984. ASML produces a very unique piece of equipment that enables the production of smaller and more energy efficient chips — advanced light ray lithography patterning tools. With the exponential growth in computing power (including for such uses as data storage), the fast growth of connectivity and the digital infrastructure in virtually every facet of the economy, this tool is a critical element for semiconductor chip manufacturing, part of enhancing economic productivity. ASML has a strong market position in part due to the fact that it is “tech agnostic,” meaning it is not dependent on any particular large technology company customer, and, in fact, may be better placed than many chip designers since it is more insulated from the threat of large technology companies designing their own chips, as they would still need to use these patterning tools. ASML has a near monopoly in both the current-generation DUV (deep ultraviolet) and also next-generation lithography tools (EUV, extreme ultraviolet), which looks to continue as the shrinking size of semiconductor chips remains a critical trend. With substantial economy of scale, close relationships with customers and continued heavy investments in research and development, ASML enjoys a strong competitive edge, high margin, and consistent strong profitability with high returns on capital.
Bandhan Bank operates as a commercial bank and is India’s largest micro finance bank, focusing on serving the rural, underbanked and under-penetrated markets in that country. Bandhan Bank sources retail deposits from the semi-urban and urban middle class to finance the micro finance lending business, which represents the vast majority of the loan book, and 100 percent of these borrowers are female. Priority sectors include agricultural loans, such as those to small and marginal farmers. Regionally, the bank is focused in North and Eastern India, where penetration rates are lower, with the average loan size at $350. This high-quality bank is well-positioned to continue to benefit from the transition to a more sustainable and inclusive global economy. It has developed a strong brand and a strong track record of cost leadership and profitability with resilient margins. Despite charging the lowest interest rates for its micro finance loans, Bandhan Bank has the best financial ratios in India. The investment team believes it has a long runway for growth, with continued expansion and penetration of its customer base and market share gains including from excellent operating efficiency.
Croda (Specialty Chemicals, UK)
Croda is a specialty chemicals company serving diverse end markets including the personal care, pharmaceutical, agricultural and industrial sectors. With 61 percent of its raw materials derived from bio-based sources, mainly natural oils, Croda is an enabler and beneficiary of the transition to more sustainable ingredients across many markets. The company has also put sustainability at the heart of its strategy, expanding its portfolio of sustainable technologies and solutions for environmental and healthcare-related end markets. In addition to being a clear sustainability solution provider, Croda has a very strong financial profile and highly regarded management team. The company maintains its structurally high margins and sector-leading returns by focusing on a large number of small, high growth niche markets and providing genuinely innovative solutions to its customers. The proportion of its products that are “new and patent protected” is currently more than 40 percent and that percentage is rising every year. Geographical and end market diversification with 50 percent exposure to consumer end markets provides steady structural growth and some defensiveness to revenues. In agricultural and pharma end markets, demand for its chemicals products is being driven by the need to improve agricultural productivity more sustainably and the shift to large molecule drugs.
Cadence Design Systems
Cadence is the leading provider of electronic design automation (EDA) tools that are used for designing semiconductor chips and electronic systems. In the age of “connected everything,” this company provides some of the key architectural building blocks for the era of the Internet of Things. Cadence’s semiconductor design tools let enterprises introduce connected systems and machinery, which contribute to improved energy efficiency through reducing required inputs and increased productivity. Autonomous vehicles, home automation, 5G connectivity, factory and buildings energy management, data security, logistics and navigation, and smart cities all rely on increasingly complex systems, at the heart of which lie integrated circuits on semiconductor chips. Chip design tool companies operate stable business models with high barriers to entry due to the necessary high research and development (R&D) costs, which are enabled by substantial free cash flow. With a unique business model that is agnostic in terms of individual software or hardware, Cadence designs whole electronics systems or individual chips as well as increasingly small and complex integrated circuits, including those interacting with sensors. Mission critical technology for electronic systems across the entire electronics design chain with a loyal global customer base make Cadence an attractive U.S. information technology company.
IQVIA (Life Sciences Tools & Services, U.S.)
IQVIA is a unique combination of a traditional contract research organization (CRO), which conducts outsourced clinical trials, and a healthcare technology company. Formed in 2016 through the merger of the largest global provider of healthcare data and the world’s largest CRO, the combined company provides a variety of information, technology services and contract research services to healthcare companies. IQVIA is leveraging its unmatched data assets and analytical capabilities to create a differentiated, “next generation” CRO that can run quicker, more efficient and less costly trials. The opportunity is large given the pressure on pharmaceutical companies to improve research and development efficiency; more than 80 percent of trials are delayed and many fail. One of IQVIA’s key competitive advantages is its ability to use its data to address the challenge of patient recruitment, one of the most frequent causes of trial delays and failures. The superiority of IQVIA’s product versus other CROs is beginning to convert into accelerated revenue growth and share gain. Alongside that, IQVIA is seeing strong demand for other software services it provides for healthcare companies that help improve outcomes and efficiency, such as the exciting area of “real world evidence,” which provides real-time evidence of the efficacy of drugs in the market. In an industry that is, relatively speaking, still rather inefficient with regards to data, IQVIA’s unique business model puts it in a strong position to disrupt healthcare markets through the use of technology.
Pax Global Opportunities Fund Top 10 Holdings
This information is not a recommendation to buy or sell any security.