Sarasin & Partners’ head of thematic investment Christopher Lindsay is a font of obscure facts that, when fed into his investment process, present him with compelling investment cases. Here are three bizarre facts that have changed his thematic approach in recent years.
The Americans are powering their homes with Russian warheads
US president Ronald Reagan was rubbing his Cold War victory in a bit when he did the ‘Megatons to Megawatts’ deal with Russia. This 20-year deal, which ends in 2013, sees American nuclear power stations use Russian nuclear warheads for fuel. So far, some 15,633 nuclear bombs have been used to keep American TVs on. Over the past 20 years, around half of the nuclear power used in the US has come from this source, which equates to 10% of the nation’s total electricity.
For Lindsay, this reality requires a very specific investment response. He says: ‘What it means is that, because not a single tonne of American warhead has been used, the president could, at the stroke of a pen, decide that after 2013 that this will be the source of the highly enriched uranium the power stations will use. This would mean that around 50% of the market for uranium could instantly be gobbled up.
‘So thinking thematically, we see that we want safe bets and that the apparent demand for mined uranium could just evaporate.’
It means that although Sarasin believes nuclear is a growing trend, the company will not invest in uranium mines. Instead, it is focusing on small-cap companies specialising in the decontamination of used uranium.
Between 1900 and 1920, some 200 electric car companies went bust
That darned internal combustion engine! The problem is that it is just so good at making things move, and in the first 20 years of the 20th century it saw off competition from 200 companies seeking to make automobiles run on electricity.
Now, with all this talk of peak oil, many companies are trying again, and some of them can make some pretty snazzy sports cars run on turbo-charged Duracells.
But the problem for Lindsay is that in the early part of the 20th century there were really no barriers to entry into the electric car market, and there are not any more today. For this reason, he argues that backing any single manufacturer of an electric car leaves you vulnerable to disaster, much like those pioneer investors were.
For this reason, he has rejected the electric cars from Tata and even the Hollywood-favourite Tesla, which can go from 0 to 60mph in four seconds. Instead, he has found a company that provides the basic stuff on which many still untested battery designs are based: lithium.
He said: ‘The key ingredient is the battery pack, and we are simply not sure which design of batteries will win through. They pretty much all involve lithium, so we are backing Chilean company SQM, which also has a listing in New York.
‘It makes some of its money from fertiliser, which we also like, but it is building up its capability to satisfy the car industry with lithium for batteries and experimenting even now with producing crystals that can hold electricity at the base of windmills. It ticks a lot of thematic boxes.’
Rio Tinto is good with robots
It sounds like a vision from a science fiction film, but apparently underground somewhere in Western Australia Rio Tinto has a team of robots toiling to extract iron ore.
The mine, which produced 19 million tonnes of iron ore last year, is not entirely without people, but it is nearly there. The lorries that drive the stuff around are unmanned and the drills that place the explosives are unmanned. Lindsay’s response to this is to conclude that the big miners such as Rio, which owns the intellectual property around this technology and, perhaps more importantly, can afford to invest in its development,
are going to make mining cheaper for themselves and potentially squeeze out smaller competitors.
‘The point is that if the big guys can reduce the costs of mining, particularly in places such as Australia where the cost of labour has got very high, it gives them an advantage over junior companies that don’t have economies of scale and the technology,’ he said. ‘So by searching for companies and thinking thematically for companies with superior intellectual property, you discover that Rio has a significant advantage over its competitors.’