The latest fund tip, hand-picked by our Investment Guidance team.
Fund of the Month April 2020
Huge inefficiencies in delivering power to users and an overreliance on oil and gas means there is a large and growing market for companies involved in making energy generation and supply cleaner and more efficient. This fund has been benefitting from this trend and is one we have recently added to our preferred list.
Reasons to buy
- Provides exposure to companies engaged in the provision, storage, supply and consumption of clean energy
- Has one of the highest yields in the sector, yet has also delivered very strong returns with relatively low levels of risk
- The fund has been awarded a 4 star rating by 3D investing, meaning it’s likely to have a high social impact with low ethical concerns
- The nature of the underlying investments means the fund should provide good diversification benefits as well as some inflation protection for investors
Things to be wary of
- Investors should be aware that major renewable energy indices and similar active strategies suffered huge losses during and after the Global Financial Crisis
- The fund may have some exposure to companies involved in natural gas extraction or processing, which could go against some individuals ESG considerations
- The fund doesn’t have a long track record to make inferences from, although past performance shouldn’t be used as a guide for future performance
About the fund
VT Gravis Clean Energy Income was launched in 2017 and is run by William Argent, who has been investing in the listed infrastructure sector since 2006. The aim of the fund is to deliver a regular income of around 4.5% per annum (after charges) as well as growing and preserving investors’ capital throughout market cycles. The manager endeavours to do this by investing in a blend of global listed securities including: yield co equities, investment companies and normal equities. The core belief when investing in this area is that electricity from clean sources is a significant contributor to the world’s growing need for increased power.
Income streams generated in this area, in the form of subsidy payments and revenue from power sales, tend to be reliable and predictable. Moreover, there is potential for capital growth because demand in the sector is growing – especially stemming from those integrating ESG, sustainability and climate change into their investment considerations. Argent seeks to identify companies with mature technologies and established track records, attractive long-term dependable cash flows and those that are income generative and profitable.
Portfolio positioning and performance
The resulting portfolio is one concentrated in nature, with around 30 holdings, providing exposure to around 900 separate operational renewable energy assets. Around 84.5% of the fund is invested in companies owning operational renewable energy assets, primarily wind, solar and hydro projects. As a result, these tend to be medium to long-dated and either subsidized or fixed price, meaning that cash flow predictability is increased whilst volatility is reduced. Furthermore, around 25% of the portfolio exhibits inflation protection.
The fund was in the top 10% of funds for both 2018 and 2019, highlighting both the resilient, defensive qualities as well as the potential for growth the fund has. Investors must of course remember past performance is not an indication of future performance. The relatively low levels of risk used means the risk-adjusted returns for the fund are very strong. In addition, the fund has a reasonably low sensitivity to market returns, making it a useful tool within a portfolio to improve diversification, helping to reduce overall portfolio risk.
This has all been achieved with one of the highest yields in the sector, and at a reasonable cost –an added bonus for investors.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.