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.
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 which 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 R&D, ASML enjoys a strong competitive edge, high margins, and consistent strong profitability with high returns on capital.
Abcam is a British company that produces and sells antibodies via a uniquely comprehensive and high-quality online catalog. Helping to address evolving health care challenges, its customers include universities, research institutes, and pharmaceutical and biotechnology companies around the world. As a result of the developments in gene sequencing, these research antibodies, different from therapeutic antibodies, are used in biological research. Abcam has created a very successful business model by focusing on high quality reagents (“gold standard”), housing a platform of high quality research tools and data, offering accompanying expert technical support, and fast delivery. A high quality product means a majority of a particular antibody’s market share and a ~20% price premium. The company is a global market leader, with important end markets in US, China, Japan, UK, and Germany. Importantly, the business model is agnostic regarding individual drug success and therefore also without traditional pharma and related regulatory risk. This makes Abcam’s business model defensive. The company even has the possibility of earning royalties when designing bespoke antibodies for particular customers. Its close ties to academia, excellent analytic capabilities, data warehouse, and research related insights give it a strong competitive edge. Abcam’s products enjoy long cycles and overall growth is in the double-digits, with high margins and a high return on invested capital.
Bandhan Bank (Regional Banks, India)
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 India. 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% of these borrowers are female. Priority sectors include agricultural loans such as 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.
Cadence Design Systems (Application Software, U.S.)
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. Synopsys and Mentor Graphics are the other two large players in chip design. 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.
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% 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. As well as 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 which are ‘new and patent protected’ is currently over 40% and rising every year. Geographical and end market diversification with 50% 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 1) the need to improve agricultural productivity more sustainably, and 2) the shift to large molecule drugs.
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 R&D 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 also 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
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