Renewed opportunities in renewable investments
When thinking about environmental investments, the first sector that usually springs to mind is renewable energy. For the £335m Jupiter Ecology fund, however, a lack of exposure to the sector has actually helped boost performance.
Charlie Thomas, who has managed the fund since 2003, says: “Certainly in the past year we were very concerned about the renewable energy outlook, particularly in the solar sector, and we have been for some time. So we’ve basically reduced our exposure to virtually zero within the portfolio.”
He explains that the renewable energy sector has seen share prices fall roughly 65-70 per cent in the past two to three years as optimism dipped. The fund broadly reduced exposure to solar and renewable energy roughly three to four years ago and has been publicly negative on the sector since the boom in 2008.
“It is a sector that has gone from being very favoured in late 2007 and early 2008 to one in which there is virtually zero interest. That has been a real major bonus in terms of our performance against not only our peers but indices such as the FTSE ET50 (Environmental Technology Index), which is probably the closest proxy that we’ve got to an index,” says Mr Thomas.
The fund has returned 0.95 per cent year to date to July 31, compared with 6.76 per cent for its benchmark, the FTSE World index, and 5.01 per cent for the IMA Global sector where the fund sits, according to Morningstar. But its performance is hardly comparable to the more traditional equity funds within the sector, and over three years to July 31 the fund has produced a cumulative return of 16.99 per cent, significantly outperforming the FTSE ET50, which recorded a loss of 28.57 per cent.
Using a fundamental, bottom-up approach to investing, the fund focuses on environmental solutions such as energy efficiency, water, waste and organic food. The latter is the major part of its investments in environmental trends among consumers, a theme to which a number of its largest 10 holdings relate.
“When we talk about consumer trends it is very much the organic food, the high wealth food sector, where there continues to be a lot of demand. Our quite significant exposure to those sectors has done really very well, companies such as Whole Foods Markets. A UK company that has very much focused on the high wealth organic sector is Cranswick, which has performed very robustly over the past 18 months.”
Additional positives have come from industrial stocks, which account for 49.61 per cent of the fund, although these are primarily companies focused on energy efficiency opportunities, to exploit the rise in high energy prices. One example is Regal Beloit, a top 10 holding at 2.4 per cent of the fund, which focuses on energy efficient electric motors.