The lockdown of many businesses has led to severe economic downturns in many countries. Policymakers around the world have stated that they "will do what it takes" to save the economy and jobs in the wake of COVID-19.
This is good news for the environment, and it's good news for our fund.
Potential road maps for investment already exist, including Germany's Climate Action Programme and the EU's Green Deal. Economic stimulus packages of unprecedented size are also expected from several other countries. We believe that many of these countries will use the opportunity to reset their economy on a more climate-friendly path.
China and South Korea, the first countries heading towards normalisation, have already increased their subsidies towards environmentally friendly alternatives.
This is good news for the environment, and it is good news for our Renewable Energy fund.
Green stimulus packages will boost the demand for green solutions
To increase sustainability in different industries is a commitment in line with the Paris Agreement for most countries. My colleague Christian Rom and I expect the authorities to prioritize jobs and businesses they want to bring into the future in the upcoming spending plans.
During the 2008-2009 financial crisis, twelve of the largest economies generated a total of $ 223 billion in green stimuli, according to BNEF. About 60 per cent of this went to the energy efficiency and renewable energy sector.
As many of the industries have become significantly more competitive after the financial crisis, there is better value for money to be had in these sectors now.
The major financial aid packages during the ongoing crisis will probably also be spent largely on sustainable solutions. As mentioned, the EU, China and South Korea have already begun. Germany has announced a green stimulus package of 750 billion Euro, and in the United States, several stimulus packages have been initiated and we expect many of them to have significant green requirements in their content.
When all this stimulus money is injected into the economy, it will increase the demand for green solutions.
5 trading strategies to exploit the crisis
Our fund was hit relatively hard when everything closed down in March. The cyclical shares in our portfolio dropped in value. Other equities, such as energy production, did not fall as much.
One should never let a good crisis go to waste, they say, and to this, we agree. We have used this crisis to make good buys in the market.
Every trading day since the lockdown hit the markets, we have traded shares based on five strategies:
- Adding in oversold names in light of their safe cash flows and balance sheets: We have chosen to buy companies where we believe the risk of further losses is low due to relatively safe cash flows and strong balances. Examples of such companies are FutureFuel, Enel and Voltalia.
- Buying in structural winners which have sold off heavily offering strong upside: We’re always trying to tune our portfolio towards what we believe to be the best long-term themes. In a bearish market, it is often a good time to increase our share of these stocks at a good price. For example, we have acquired more of SunRun, Scatec Solar, First solar and Huntsman.
- Funding in names that have been holding up well with less upside: As the markets started to crash, some stocks held up quite well. In many of these, we do not see a great possibility of further growth. We have downweighed these to fund buys in line with bullet points 1 and 2. For example, we eased our holdings in Ørsted and Eon during this period.
- Consolidating within sub-sectors – positioning toward names which will come out of the crisis relatively stronger: These are primarily companies in the transport sector. We believe this is an industry where we will see major changes going forward. We have bought companies that we believe will survive (Martinrea and Magna) and come back stronger after the lockdown period and have sold others that we think will be weakened (American Axle).
- Reducing in stocks where short-to-mid term outlook has become more uncertain in light of the weaker economy and lower commodity prices. Market conditions have changed significantly in the short to medium term and the lockdown has major financial consequences for many companies.
There’s no doubt that the world economy is facing a challenging time and that there will be major changes in a longer perspective. As managers of a fund investing in Renewable Energy, we believe that an active approach as outlined above has been right and will be right going forward.
Investing in sustainable solutions is the future.
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