Investments in Triodos Organic Growth Fund are subject to several risks, which are described in detail in the particulars relating to the sub-fund included in the prospectus of Triodos SICAV II. Some of the relevant risks are highlighted below.
Market risk (investee returns)
The fact that the returns generated by the investee companies are determined by various uncertain factors constitutes a long-term risk. Returns on individual investments arise through a combination of dividend distributions, growth in business value, or, in certain cases, through the partial or total sale of investments. In case of adverse market and/or business developments, dividend distributions may decline, as may the valuation of underlying investments. Over time, sufficient diversification of the portfolio will mitigate this risk. During 2016, the fund further diversified its portfolio with three new investments. The market risk did not materialise in the fund’s portfolio in 2016.
As Triodos Organic Growth Fund is a semi open-end fund, it can in theory be confronted with large redemptions on each valuation day. Moreover, the fund invests for the long term and its investments are relatively illiquid. Since the fund is getting further invested after the build-up period, quarterly stress testing scenarios have been developed, which have not indicated any liquidity issues. On December 31, 2016, Triodos Organic Growth Fund held 30.0% of its net assets in cash and cash equivalents (2015: 66.0%). In 2016, liquidity was considered more than adequate for the fund to meet its payment obligations and facilitate the quarterly subscriptions and redemptions in its shares.
Triodos Organic Growth Fund has a very specific, sector-based investment focus, targeting the organic food and sustainable consumer sector in Europe. If a downturn occurs in this market or in relevant sub-sectors of this market, this will likely have a negative impact on the performance of investee companies and therefore on the return of the fund. This risk will be mitigated by diversification across sub-sectors and value chain segments. In 2016, the organic food and sustainable consumer markets showed healthy growth.
Triodos Organic Growth Fund invests in several European countries. The country risk mainly consists of the risk of changes in economic conditions, such as consumer confidence and regional appetite for and faith in the products and services of the companies that the fund has invested in. The country risk is mitigated by investing primarily in western European countries and by applying an upper limit of 40% for the percentage of the fund’s total assets that may be invested in any one country. The exception is Germany, where the fund may invest up to 50% of its total assets. The largest single country exposure as at December 31, 2016, was Denmark with 35.9% of the fund’s total assets (2015: 25.5%). In 2016, the investments of the fund were not negatively impacted by the economic and political climate in the countries where the fund invests.