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View the article online at http://citywire.co.uk/wealth-manager/article/a729616

Is it time to back renewable energy?

by James Phillipps on Jan 22, 2014 at 12:08

Impax remains underweight, but Simm said he expects to increase his exposure throughout the year.

He is not alone in finding value in renewables. Knut Harald Nilsson, the Citywire A-rated co-manager of the £4.8 billion Skagen Kon Tiki fund, bought into solar energy for the first time late last year.

‘Solar energy stock prices are down more than 90% since 1997, if they have not gone bankrupt, and panel prices have come down 90% over the same period,’ Nilsson said.

‘We are starting to see the industry getting competitive, even in countries without subsidies. We have bought five companies we feel are the cost leaders, we are too big to get access through one company.’

Water treatment

The water scarcity theme is hardly a new one, but Pictet Water fund manager Hans Peter Portner believes there is now evidence emerging that the water theme is benefiting from being integral to the urbanisation, commercialisation and sustainability mega-trends.

He said in some cases water companies are actually benefiting from austerity, as more municipalities look to private sector expertise to reduce costs or provide financing.

‘Recent developments in the US highlight that trend, as Suez Environment just signed a 40-year partnership agreement for $195 million with the city of Bayonne, New Jersey, involving KKR, the private equity firm, in a new concession model separating asset management from operational activities,’ Portner said.

Although he expects global economic growth to be sluggish over the next couple of years, he believes the water industry ‘is poised to outperform the broader market as the thematic drivers remain valid regardless of the economic environment’.

Simm is also bullish on water, highlighting ‘improving technologies and increased demand’. China could potentially increase investment in this area, after the government vowed to invest in reducing pollution and water treatment at its Third Plenum.

Agribusiness

The food scarcity theme is another longstanding staple of thematic investing that has disappointed in recent years, but while Simm noted the outlook for the broader agribusiness sector remains unclear, there are still opportunities to be found.

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