Seven stocks to invest in for a cleaner, safer and more efficient economy

Liontrust Sustainable Investment Team

Wind Power

As London’s inaugural Climate Action Week continues, Liontrust’s Sustainable Investment team identifies stocks held across their portfolios that are making a positive contribution towards the goal of achieving net zero greenhouse gas emissions.

Income portfolio favourite National Grid recently announced that zero-carbon energy sources are poised to overtake fossil fuels as the UK’s largest electricity source over a full calendar year for the first time, following a dramatic decline in coal-fired power and rising renewable energy. Two-thirds of all new installed power generation over the past two years has been renewable, and the shift to lower carbon power is accelerating.

The cost of wind and solar energy has fallen sharply with increased scale and these are now are the cheapest form of electricity generation in many places around the world, including the UK. We believe the market is underestimating the magnitude and persistence of the trend towards renewables and continue to look for opportunities through our Increasing electricity generation from renewable sources and Improving the efficiency of energy use themes. Here are seven stocks from our portfolios that are helping to make the world a cleaner, safer and more efficient world.

Siemens Gamesa

Siemens Gamesa 


Companies like this large wind turbine manufacturer are set to benefit from rising demand for its goods over the next decade and beyond. The sheer scale of its offshore wind turbines is impressive: the blades are 170m in diameter, meaning it would take Usain Bolt nearly 16 seconds to sprint across them.
These huge offshore wind turbines are harder for Asian manufacturers to copy and compete with, meaning the company’s margins are relatively safe.

Siemens Gamesa’s stock performance has been volatile in recent years, underperforming recently due to rapidly falling wind turbine prices. Despite this, we believe the company is well placed to capture profitable growth in turbine sales, driven by demand for cheaper wind power.


Ørsted

Orsted 


This
Danish utility services company is a recent addition to our portfolios and also focuses on offshore and onshore wind development. Speaking at the recent Bloomberg Sustainable Business Summit in London, Ørsted UK head Matthew Wright said switching to 100% renewables is the only feasible business model for the future and companies failing to make the switch will not survive.

Ørsted itself has changed to become a green energy company, a strategy that started in 2017 with the divestment of its oil and gas business. This led to the company changing its previous name of DONG (Danish Oil and Natural Gas) and take the name of Danish scientist Hans Christian Ørsted, who discovered electromagnetism. At the end of last month, Ørsted announced the former coal-fired Studstrup Power Station near Aarhus in Denmark would run on straw and wood pellets.

Verbund

Verbund 

Verbund is an Austrian-listed power company. Our investment is based on a continued increase in the EU Emission Trading System carbon price: this had traded below 5 per tonne of CO2 for years but recently breached the 20 level for the first time since 2008 and we believe it can keep rising to 25 to €30 (and beyond), which in turn will inflate the power price in Europe.

As a hydro player with relatively low costs, Verbund is highly operationally leveraged to an increase in power prices and the resulting cash flows from selling its own product, which emits very little carbon, at a higher price. With its low-carbon electricity generation, Verbund is a beneficiary of decarbonising the grid. Despite strong performance from the stock, we believe the predicted appreciation in carbon prices is not currently priced in.

Kingspan

Kingspan 

Improving the efficiency of energy use is a key theme across our portfolios, and we think this Irish business is well placed to profit from increased demand for its energy efficient products.

The company produces thermal insulation, which helps to cut the amount of energy needed to heat the buildings in which we live and work. Starting life in the mid-1960s as a small engineering and contracting business, Kingspan now has more than 10,000 employees across five continents and continues to innovate to create products and tech for every type of building, from panels to ducting to architectural facades.

Daikin

Daikin 


One of our longest-standing investments, this Japanese air conditioner manufacturer also falls within our
Improving the efficiency of energy use theme. Many would point to air-conditioning as a key source of energy usage and therefore of carbon emissions but, while this is true, Daikin’s products can cut both drastically.


Japan is, and has always been, a country that lacks natural resources and so has always had to find ways to use its engineering prowess to develop innovations that use energy efficiently. Daikin has a number of technologies that cut energy usage by more than 50% compared with traditional products: its ductless system is the key innovation, which pushes refrigerant rather than cold air around a building, ensuring significantly less energy is used. 

Equinix

Equinix 


A key player in the emerging digital economy, this US business also has considerable exposure to the climate change theme. Held in our funds since 2011, the company runs co-location data centres, providing a gateway into important digital infrastructure such as public cloud computing networks. The technology industry in the US now emits high levels of carbon so more efficient data centres are vital: for these companies, power is their biggest cost, giving further incentives to design and run data centres more efficiently.

Equinix stands out as the only global player in the co-location data centre market and its centres have become an integral part of the plumbing for the modern digital economy. Its assets are almost impossible to copy, creating an important competitive advantage. On top of this, its business is addressing critical environmental impacts of the technology industry.

China Everbright International

Everbright 


One of the key challenges the Chinese people and government face is how to grow the economy and provide a better quality of life without destroying rivers and lakes and also ensuring air quality in cities is fit for human habitation. The government has set up PPPs (Public Private Partnerships), allowing local governments to access capital to clean up the environment. China Everbright International is a global leader in Waste to Energy and BioMass plants, as well as environmental remediation of waterways.

The company is generating growth in its core businesses as China looks to use technologies that can ensure streets are clean and waste is used to provide energy, forgoing the need for dirty fuels such as coal. There is also huge demand for cleaning waterways given the amount of pollution dumped in rivers and lakes across China over the last 20 years. The government has a simple slogan, “Beautiful China”, and China Everbright International is a leader in making this idea a reality.

For a comprehensive list of common financial words and terms, see our glossary here. 


Key Risks


Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.

Disclaimer

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Tuesday, July 2, 2019, 11:33 AM