14.02.2012

Matthew Jamurtas

Portfolio Manager

New Mellon Asset & Wealth Management S.A.

As global warming continues and societies and economies move to low-carbon models, the need for cleaner energy sources is set to grow and investment into the green energy sector has the potential for impressive rewards. The WIOF Green Energy Performance Fund offers investors the chance to take advantage of that potential.

 

OVERVIEW

Focusing on long-term capital growth, the Fund invests in worldwide renewable energy sector equities and equity-related securities, targeting companies with good long-term results and growth potential to create a diversified portfolio. The Fund also offers investors exposure to an ever-growing opportunity set in a sector which is increasingly being seen as part of the mainstream economy.

 

THE RISE OF GREEN ENERGY

Traditional fossil fuels are already being seen as not just ecologically unsound but also volatile and insecure. Last year’s events in Libya brought into sharp focus larger questions about reliance on fossil fuels. Oil prices soared because of political instability – a situation that governments, as well as corporations, are acutely aware of. More recently, tensions between Iran and the US have again affected oil prices amid fears over the effects an international conflict in the Persian Gulf would have on global oil supplies. But even before the unrest that spread across the MENA region in 2011, energy watchdogs had warned that the era of cheap oil was over and the steadily growing worldwide demand for renewable energy sources, such as solar power, shows how the green energy sector is becoming more important to future world energy resources.

 

Solar Sector – Market Demand Consensus

Source: FIRST SOLAR, Forecasts from Barclays, CITI, Credit Suisse, Deutche Bank, GS, JPM, Morgan Stanley

 

But the green energy sector’s potential is also founded on a number of other factors and developments, including:

  • The needs of countries like China and India to reduce their dependency on fossil fuels will drive the renewable energy market in years to come.
  • Countries are turning to energy efficiency measures to benefit from “quick wins” in cutting power use and reduce emissions.
  • Government subsidies are becoming less of a crucial factor for renewables as technologies are becoming cheaper and more cost competitive to fossil fuels.
  • Green energy companies grow rapidly – small players are becoming attractive to larger ones targeting mergers and acquisitions activity.
  • Political support for green energy is going to increase as the race for green technologies becomes a major priority for countries such as the USA and China.
  • Japan is set to become the next big market as it shifts away from nuclear energy.

 

Governments and politicians are also becoming more aware of the benefits – both political and ecological – of supporting green energy. More and more countries’ energy policies are focusing on the importance of cleaner energy sources and previous reports by the International Energy Agency have suggested that green energy could account for 46% of global electricity production by 2050 with an estimated USD10.5tn investment needed by 2030.

 

IMPRESSIVE POTENTIAL

The green energy sector also boasts a wide range of fields for investment from wind, solar, hydro and geothermal power to sectors such as energy storage and energy efficiency. These sectors have shown, and continue to show, impressive growth. The performance of the LED and lighting sector stands out, with its market expected to double by 2015 as LED TV and lighting demand soars.

LED Market Size (USD billions)

OUTLOOK

Looking forward, 2012 is set to be a turning point for green energy stocks. In 2011, alternative energy added tens of gigawatts of new capacity - with a significant share of this in China, Italy and Germany - increasing its share of global total energy production to well above 5%. But this development was not reflected in green energy stocks as wind and solar equipment oversupply and demand interruptions in the European Union led to steep declines in equipment prices and shrinking corporate margins. Moreover, many companies in the sector faced uncertain futures. However, in 2012, we expect green energy stocks to rebound after two consecutive years of negative returns for, among others, the following reasons:

 

  • Falling component costs mean that green energy technology is now directly cost competitive compared to fossil fuels and cost reductions will spur the development of offshore wind and solar facilities.
  • Stock valuations offer opportunities for mergers and acquisitions as consumer electronics companies look for entry points into the industry.
  • The incident at the nuclear power plant in Fukushima has changed energy policies in key countries such as Japan and Germany.
  • Developing economies, such as those in India, the Middle East, Africa and Latin America, will be the fastest growing markets for green energy.
  • Developing nations such as China and India have pledged, for the first time, to work to reach an agreement to cut emissions.

 

INVESTMENT MANAGER

New Mellon Asset & Wealth Management (NEW MELLON) is an independent employee-owned asset management company led by a team with more than 25 years’ experience in managing local and international funds. Founded in 2006 and based in Athens, the company focuses exclusively on global investments related to climate change, such as renewable energy, efficiency, waste management and recycling.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.