The Impax Global Social Leaders Fund faced a challenging quarter, experiencing underperformance relative to its benchmark, the MSCI ACWI index. This divergence was largely driven by market dynamics characterized by heightened concentration and a preference for investment styles centered on momentum, value, and cyclical sectors. Despite these short-term headwinds, the fund's management remains optimistic, identifying promising opportunities within companies demonstrating sustainable structural growth and attractive valuations. Their strategic focus on long-term secular trends is a cornerstone of their investment philosophy, underpinned by a belief that current market de-ratings in certain sectors are overextended, thus presenting unique entry points for value-driven growth.
Market Headwinds and Fund Performance in Q4 2025
In the fourth quarter of 2025, the Impax Global Social Leaders Fund saw its performance lag behind the MSCI ACWI index. This underperformance was mainly attributed to the market's increasing concentration, which saw a disproportionate allocation of capital into a few large-cap companies. Furthermore, the prevailing investment styles, which heavily favored momentum, value, and cyclical stocks, created significant challenges for the fund’s quality-focused portfolio. These market preferences acted as strong headwinds, particularly impacting the fund's holdings in the Information Technology sector, where the emphasis on growth and sustainability was temporarily overshadowed by other market factors.
The concentration in the broader market meant that a smaller number of companies drove overall index returns, making it difficult for a diversified fund like Impax Global Social Leaders to keep pace. The market's shift towards value and cyclical plays, often characterized by companies tied to economic cycles rather than long-term secular trends, also put pressure on the fund. Impax’s strategy typically emphasizes companies with robust business models, strong balance sheets, and sustainable growth drivers, which did not align with the short-term market preferences during this period. The fund's commitment to quality investments, while fundamental to its long-term strategy, led to short-term underperformance as investors prioritized other factors.
Identifying Opportunities Amidst Market Shifts and Attractive Valuations
Despite the recent underperformance, the investment team at Impax Global Social Leaders Fund believes that current market conditions are creating compelling opportunities. They contend that the market's focus on short-term factors has led to an undervaluation of companies poised for sustainable structural growth. This creates an attractive entry point for investors looking for long-term returns in businesses with strong fundamentals and alignment with critical social and environmental themes. The team actively seeks out these undervalued assets, confident in their potential for significant upside as market sentiment eventually shifts back towards quality and sustainable growth drivers.
The fund is particularly bullish on sectors like Healthcare, anticipating a rebound as regulatory pressures subside, and Consumer Discretionary services, which are benefiting from accelerated digitalization and resilient consumer demand. They emphasize that the de-ratings observed in the software sector are often overdone, arguing that artificial intelligence (AI) will ultimately strengthen the competitive positions of vertical software companies, enhancing their long-term value. This strategic outlook is rooted in the belief that the market frequently underappreciates the durability of companies aligned with secular growth themes, especially those with strong workplace cultures and innovative capacities. By focusing on these areas, the fund aims to capitalize on what they perceive as mispriced assets, positioning for superior long-term performance.