We invest differently to most other fund managers. We are not interested in the multinationals in ‘traditional’ industries. In the current environment these can expect to grow at a rather mundane national GDP growth rate. Instead, we focus on three key areas where we believe that global challenges will lead to exciting investment opportunities: climate change, water shortages and demographic shifts (i.e. a rapidly expanding and ageing population). The biggest companies in 20 years’ time will not be the same ones as today. We believe that we can generate above-average investment returns by identifying top-quality firms positioning themselves for an altered, more sustainable future.
Taking one of our key themes of energy efficiency, we are invested in EnerNOC (NASDAQ: ENOC), a leader in smart-grid technology. It focuses on intelligent systems to help grid operators and utilities manage power demand. Forecast earnings growth rates are 28% a year in smart-grid companies versus a rather less impressive 2% growth rate for traditional energy firms. The current instability of the euro and the likelihood that European governments will be unable to sustain subsidies makes Enernoc even more attractive. That’s because it is one of the few companies in the clean-tech world with nearly zero European exposure and no subsidies.
We also anticipate that as the US economy recovers over the next few years, energy use and peak-demand response will increase. Signs of this include the Tennessee Valley Authority expanding its demand response threefold by 2012. Enernoc is one of the main contenders to win a contract that will generate an additional $24m in revenues.
Another top pick for us is Vestas (CPH:VWS), the Danish wind-turbine manufacturer. It has a 12.5% global market share and has recently received the world’s biggest order of turbines from EDPR, one of the world’s largest wind energy firms. Chinese competition will emerge over time, but currently Vestas is able to tender for large contracts. And it has the logistics in place to ensure smooth completion in a way that the Chinese competitors don’t. It has also announced a spate of smaller orders from Canada and China and we believe it is only a matter of time before the market re-rates this stock and recognises its long-term growth potential.
Meanwhile, in solar power we like Trina Solar (NYSE:TSL), the Chinese solar company. It continues to drive down costs ahead of peers, is the lowest-cost producer in the market and is gaining market share at an impressive rate. Investors are concerned about a drop off in orders in the European solar markets and so have sold the shares. They are now looking pretty cheap, trading on seven-times earnings. We believe that a pick up in orders in the second half as orders flow through from China and the US will mean that the company beats its generation targets. A good result will boost confidence in the sector and in Trina as one of its leading player.
Investors should remember that climate change is still at the top of the political agenda. So the companies providing solutions to this challenge represent the very best sort of long-term investment. Good news for the planet and good news financially too.