Energy gain from Obama factor

By Hugo Greenhalgh
Published: March 15 2009 09:41

Part of the appeal of the BlackRock BGF New Energy fund can be summed up in one word: Obama.
Since Barack Obama became US president in January, he has pledged $150bn (£109bn, €118bn) over 10 years to “clean energy” measures. Five million new jobs are to be created in the sector and plans are in place to produce 10 per cent of the country’s electricity from renewable sources by 2012, and 25 per cent by 2025.

Yet despite this obvious fillip, Robin Batchelor, co-manager with Poppy Allonby of the $2.3bn fund, denies that a Republican victory would have spelled disaster. There is a certain inevitability driving the underlying trend towards cleaner and renewable sources of energy, he argues.
“The Republican party was waking up to the fact that climate change is an issue and that the US was an outlier in terms of their stance,” Mr Batchelor says.
“We would have had a more pro-active environment even with a Republican president.”
Climate change, renewable energy and carbon emissions are now issues that transcend party politics, he says, stressing that there is nothing faddish about the sector. “Our drivers are government policy around climate change and energy security. Climate change has not gone away and all the scientists continue to be worried about it accelerating.
“In January, Russia gave us a reminder about what energy security is all about. And we still have historically high oil prices at $45. It might not be $140, but in the late 1990s it was $10. Utilities have woken up to the volatility in oil prices and the issues over long-term supply.”
Given these considerations it is perhaps not surprising that the investment process starts with a top-down analysis of macroeconomic and legislative factors.
“We start by looking at the legislation at work in terms of alternative energy in different markets around the world,” explains Mr Batchelor.
One common fallacy, he is keen to correct, is that the market is immature and mainly made up of microcaps. While this may have been true back in 2002 when the fund, which is structured as a Luxembourg Sicav, held 93 per cent of its assets in sub-$1bn companies, now this figure stands at 20 per cent.
“People ask me when the new energy market is going to take off,” he says, “and I’m mildly gobsmacked. There were only 300–odd companies at the turn of the century and there are now well over 1,000 in the sub-sector. They are much more mature and a lot bigger than people realise.”
In performance terms, over three years to March 2, the fund has fallen by 22.36 per cent, compared with a drop in the Morningstar IM SC Energy index of 16.94 per cent.
Mr Batchelor is candid about the fund’s performance: “We have lost clients’ money over the last year, but at least we were in the bigger companies that were earnings positive and have not just disappeared.”
The fund’s investment philosophy is geared around making money today, he says, rather than looking for the high-tech successes of the future. “You can get stuck in a lot of next-generation technologies that might not be around when the next generation comes,” he warns.
Hugo Greenhalgh is editor of Investment Adviser
Copyright The Financial Times Limited 2009