CLOSED STRATEGIES

Green Strategy

Objective

The investment focus of the green strategy is on companies which provide products and services that help in reducing the carbon footprint in the environment and/or result in more efficient use of natural resources. Within the context of this strategy, the sectors that have been identified for creating the portfolio are - emission control, energy efficiency, water management and waste management. Developing a greener business ecosystem requires a long term perspective.

Investment Approach

The strategy will focus on investing in companies which would provide the support infrastructure for a “Green Economy”. This would include manufacturers/producers of renewable energy systems, organic chemicals, emission control products, energy efficiency products, water & waste management solutions. As this is an evolving theme, newer business models are expected to develop during the course of time. Unifi’s key strength has been its ability to identify the next generation of winners from the small and midcap space. In continuation of this approach, Unifi would primarily focus in the small and midcap space to identify companies which fit into the Green theme.

Universe

The Universe of Companies would be broadly selected from the following sectors:

• Renewable & Alternative energy
• Energy efficiency
• Water infrastructure & technologies
• Pollution reduction
• Waste recycling and management
• Environmental support services
• Green Chemicals

These sectors are only indicative of our current thinking and it is entirely possible that as our research progresses we might look at companies beyond these sectors. But in all cases the Green theme would be the underlying basis for selection.

Investment Risks

The foundation for the Green theme is predicated on climate change, the effect of which if not controlled or reversed has the potential to threaten the very existence of humanity within the next 100 years. Therefore, it is quite clear that the criticality of the green theme will become even more evident in the future. Nonetheless, from an investment perspective, there are certain underlying risks investors should be aware of:

• Regulations would be one of the important drivers in the transformation of the economy into a green economy. However, sometimes due to short-term political considerations, the government of the day might hesitate to legislate certain key regulations. For example: The incoming Trump administration has promised to roll back some of the existing environmental regulations.
• Technology is playing a key role in many aspects of the evolving green economy across the world. Current technologies could be overshadowed and rendered obsolete due to new innovations and discoveries. In this backdrop, the business models of some of the companies in which we invest may become redundant/obsolete due to technology disruption.
• As this is an evolving theme, there could be a possibility of high concentration risk due to limited availability of investable ideas under this theme.
• The hype created around the renewable energy space has attracted significant number of new players including businesses from other industries. This has the potential to drive down energy prices to a level which would make the renewable sector unappealing from an investment perspective.
• Due to the evolutionary nature of this theme, to realize the full value of our investments would require a long-term outlook. During the interim period, significant volatility could be experienced in the value of our investments.

Portfolio Structure

Unifi’s core competency lies in conducting deep bottom-up fundamental -oriented research to curate client portfolios. Basis our investment philosophy, our portfolio construction framework prioritizes a balanced mix of stocks across sectors based on our investment thesis and conviction, ensuring adequate diversification amongst such quality businesses. The portfolio’s concentration at any time purely reflects our sectoral or stock-specific investment thesis. While maintaining responsible diversification by limiting company/sector level exposure is an important priority, we do not have rigid allocations. When we evaluate a business, we are not biased about its market capitalization but are concerned more about the size of opportunity that the business can offer. Hence, our portfolios are generally market cap agnostic.

Our typical portfolios endeavor a good balance between diversification and concentrated exposure. We periodically review the portfolios to maintain an appropriate portfolio mix depending upon investment objective, market conditions, risk tolerance and liquidity requirement to ensure diversification.

Benchmark: S&P BSE 500 TRI