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30 November 2009

Copenhagen Climate Change Conference: What is the outlook for environmental investment companies?

AIC collates fund manager views

On 7 –18 December 2009, world leaders will gather in Copenhagen to discuss the future of our planet and with the gloomiest global warming predictions ever released recently, the climate change debate has never been more topical.  With environmental investment companies up 25% over the past year and environmental investing moving up the radar, the Association of Investment Companies (AIC) has collated the views of managers from the environmental sector.

Copenhagen Climate Change Conference – leader or laggard of change?
Although managers believe hard emissions targets are an unlikely outcome, they do believe that the presence of China, India and the US at the negotiating table is an important step.  But the real driver of environmental change, for now, is thought to be at the individual country level. 
Charlie Thomas, manager, Jupiter Green Investment Trust said: "We have been considering the various scenarios which may arise from Copenhagen and particularly the impact upon prospects for green investment if nothing binding actually happens. On balance, I do not feel that this would be enough to derail the momentum that has already been made by individual countries, as the most recent emission reduction announcement from US and China suggest. The most important initiatives are taking place at this level with commitments from the new governments of both Japan and Greece, alongside commitments from Brazil, South Korea and around Europe. Despite the possible headlines from Copenhagen, the collective momentum at the individual country level plus the continued policy support and ongoing improvement in financing the market for renewable and energy efficiency projects we believe underpin alternative energy investments.”
Robin Batchelor, Managing Director and manager of the BlackRock New Energy Investment Trust believes that the conference should have an important impact, saying: “Copenhagen is an important milestone in international environmental negotiations, as it could bring the US, China and India to the negotiating table of a global integrated emissions reduction strategy.  It is likely too early for those countries to be able to agree hard emissions targets, but having them at the table represents a huge step closer to that goal.

Ian Simm, Chief Executive, Impax Asset Management, managers of Impax Environmental Markets and the recently launched Impax Asian Environmental Markets said: “Over the past decade, the markets for renewable energy, clean fuels and energy efficiency have grown much faster than the mainstream economy.  We see the Copenhagen summit as an important milestone on the route towards even more aggressive targets for the size of these markets.”

Claire Burgess, Investment Manager, Premier Asset Management, managers of Premier Renewable Energy Fund said: “With the pre-summit commentary suggesting that the countries taking part at Copenhagen are still some way from any legal framework agreement, there is little priced into renewable stocks for a more positive outcome. This implies that the risk for the sector is on the upside rather than the downside, should Chinese pressure, for instance, yield something more than just a political declaration of intent. However, legislative developments in the US remain key to a longer term upwards move in the sector as a whole, making Washington, as much as Copenhagen the driver of any stock market response.”

Environment an unlikely benefactor of the credit crunch?
With climate change and concern for the environment very much on the agenda, Governments have played a fundamental role in providing funding and initiatives to encourage the development of green technologies.  Interestingly, managers believe some of this has been due to the credit crunch and the need to be more energy efficient.   Charlie Thomas, manager, Jupiter Green Investment Trust said: “We estimate that on aggregate, Government stimulus packages total around $513bn - a huge sum of money of which only about $59bn has been spent. Much of this has been earmarked since the economic crisis for energy efficiency drives and we believe that this is the area that will play a very significant role in reducing carbon emissions."
Robin Batchelor, Managing Director and manager of the BlackRock New Energy Investment Trust agrees and said: “The New Energy sector offers investors access to an exciting and fast-growing part of the energy market.  Over the last few years we have seen a significant increase in new legislation to support a low-carbon economy.  Governments around the world have been focusing on renewables as a way to increase energy security and reduce their emissions footprint.  Against this positive backdrop, new energy companies have made great progress, with the sector today boasting many large and profitable companies.  The wind and solar sectors are growing at around 20% per year, and New Energy investors have the opportunity to benefit from this government-mandated growth.”

Ian Simm, Chief Executive, Impax Asset Management, managers of Impax Environmental Markets and the recently launched Impax Asian Environmental Markets said: “We’re living on an increasingly crowded planet in which natural resources and basic infrastructure are under strain.  Environmental markets designed to address this critical issue are expanding rapidly, creating excellent opportunities for investors.”

Where to invest?
The managers believe that Asia, in particular China, is a key region for new energy investments and are investing in proven clean energy technology, such a wind technologies as the most sustainable long term investments. 
Robin Batchelor believes that China is the country to watch for energy investing and that wind energy is still the most cost-effective investment.  He said, “China has quietly been becoming one of the world's major markets for New Energy products.  With a target of 15% renewable energy by 2020 in place, the energy-hungry nation has become the world's largest installer of wind turbines, and has been rolling out a range of energy efficiency and other legislation that provide opportunities for the New Energy investor.
 “Wind is the most cost-competitive and scalable of the renewable energy technologies, and so remains the focus of international activity as governments look for energy solutions that are ready to be rolled out today.”
Ian Simm added: “Those renewable energy markets based on proven technology, particularly wind and solar PV, typically offer investors stable, long-term returns that can match the liabilities of institutional investors.  The pace of investment in Asian environmental markets is phenomenal.  We expect this area to out-perform global environmental markets over the next three to five years.”

Environmental Investment Company Performance - Share Price Total Return on £100 lump sum investment to 31 October 2009 (minus 3.5% charges)

Duration				1 year	3 years	5 years
Average (weighted) investment company Ex VCTs				122.54	87.76	143.27
Sector Specialist: Environmental (weighted average investment company)				125	94.47
Fund	Sector	Share	Manager
BlackRock New Energy	Sector Specialist: Environmental	Ordinary	BlackRock	132.97	90.31	174.1
Impax Environmental Markets	Sector Specialist: Environmental	Ordinary	Impax	128.73	98.2	161.33
Jupiter Green	Sector Specialist: Environmental	Ordinary	Jupter	106.64	79.73
Ludgate Environmental (AIM)	Sector Specialist: Environmental	Ordinary	Ludgate	94.13
Premier Renewable Energy	Split Capital Trust	IRC	Premier	83.41
Premier Renewable Energy	Split Capital Trust	Zero 2010	Premier	107.44

- Ends -

Note to Editors
1. The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £82.1 billion.
2. Discrete annual returns – Share price total return less 3.5% charges

Performance From	31/10/2008	31/10/2007	31/10/2006	31/10/2005	31/10/2004
Performance To	31/10/2009	31/10/2008	31/10/2007	31/10/2006	31/10/2005
Duration	1	1	1	1	1
Overall Weighted Average investment company Ex VCTs	123	60.05	109.94	119.16	124.88
Weighted Average (sector specialist: Environmental investment company sector)	125	57.08	124.52
BlackRock New Energy	133	44.4	142.43	120.3	149.23
Impax Environmental Markets	129	60.37	117.66	120.49	126.97
Jupiter Green	107	60.85	114.42
Ludgate Environmental (AIM)	94	94.62
Premier Renewable Energy	83
Premier Renewable Energy	107

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