Thursday, 19 September 2019

Bluefield Solar Trust - Full Year Results


Bluefield Solar (BSIF) was added to my SIPP portfolio in March. It's focus is purely on solar power in the UK and the technology is advanced but fairly simple with few moving parts to go wrong. It is one of the largest solar operations in Europe with net assets under management of around £436 million and generating 470MW of electricity is sufficient to power 150,000 homes.

Approximately 60% of their solar assets are covered by the old subsidy scheme which provides a guaranteed return for 20 years from the date of connection to the grid. The other 40% have rolling power purchase agreements which generally last for between 12 months to 3 years and are then renewed.

Results

The company has today issued full year results to end June (pdf link via company website).

The report seems positive. Underlying earnings per share increased by 13.8% to 11.01p and the total return including dividends was 19.1%.

The company pays quarterly dividends and will pay out a total of 8.31p for the year which includes an additional payment of 0.63p which gives a yield of 6.3% based on the current share price of 131p.

The total annualised return for shareholders since launch in 2013 has been 9.6% p.a.
 
3 Yr Performance v Foresight Solar
(click to enlarge)

Chairman John Rennocks said: 

"The year has been outstanding with above target earnings and dividends, a satisfying result for a Company that has as its first priority the delivery of attractive levels of sterling income, covered by earnings.

The explanation for the outperformance is straightforward. The period had higher than average irradiation (+6.6%), favourable conditions which were effectively translated into high levels of actual generation (+7.5%), made possible by the quality of the operating portfolio and a credit to the work of BSL.

This increased generation was then converted into high levels of revenue, enhanced in the period by the Company being able to respond to, and capture, higher power prices.

The Company has also seen a modest increase in its NAV. The main driver for this is the significant progress the Company has made in lease extensions on the portfolio, which have offset the lower power price forecasts since December 2018. As detailed in the Investment Adviser's report, the Company has had several successful planning determinations on 15 year lease extensions (amounting to over 100MWp), with a further 64MWp still awaiting an outcome or under negotiation. Significantly, the Company has not had, at the time of writing, any planning rejections".

Future Expansion

The trust's portfolio has been fairly stable for the past couple of years with 87 solar 'farms' located mainly across southern England. The UK governments subsidy for renewable infrastructure has now ceased (short-sighted imo) however, the cost of solar has fallen dramatically - 50% reduction over the past five years - and this should provide opportunities for growth.

The company are currently looking for opportunities to increase assets and a number of potential sites are currently under consideration to support the next phase of growth.

As mentioned above, BSIF are in the process of increasing the life expectancy of its solar assets from 25 years to 40 years subject to planning considerations and agreement with the owners of the sites. Successful negotiations have been completed on a two thirds of existing assets and will hopefully be concluded over the coming months. This could add a further 5% to net assets. The boost to asset appreciation over the past year means the discount has narrowed and the shares are currently trading at a premium to NAV of around 12% - down from 20% earlier this year.

My holding in Bluefield Solar accounts for around 6% of my 'green' portfolio which has been gradually building over the past year. The government will roll out its plans to get us to net zero emissions over the coming months and I am sure solar, wind and wave plus battery storage will continue to benefit from the transition away from fossil fuels. I feel comfortable with this trust in the mix and will continue to hold and roll up my quarterly dividends within my SIPP. I look forward to seeing how the management deal with expansion of the portfolio and whether debt increases but for now it can return to the bottom drawer.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Thursday, 12 September 2019

AFC Energy - Portfolio Addition


As so often is the case, whilst researching energy from hydrogen in connection with my recent purchase of ITM Power, I was sidetracked by another player in the same sector.

AFC Energy (AFC.L) is a small company listed on the AIM market. However it is one of the market leaders in the hydrogen revolution as we transition from fossil fuels to clean energy. Hydrogen is regarded as a key element in the governments announcement to reach net zero carbon emissions by 2050. The UK will host the COP 26 UN climate conference in 2020. This will focus the governments attention on climate issues and push forward policies to bring about its objective of net zero emissions.

About AFC

They are a next generation energy company offering to deliver zero-emissions electricity wherever and whenever it is needed.

The company provides large scale off-grid fuel cell systems from a basic 10 kW up to a 1.2 MW based on a modular system developed in 2018. Fuel cell technology has been around for many years but the high costs of production has held back the wider commercial uptake.

The company has also developed the world's first electric vehicle charger - CH2ARGE and is now looking to enter the EV charging market. They have signed a collaborative agreement with Europe's largest EV charging point manufacturer.

Fuel Cell Technology

Hydrogen is the most abundant element in the universe. The AFC system is fairly simple - the input is a mix of hydrogen and oxygen (from the air) which is converted in the cell to provide electricity, water and heat. The electricity produced will be continuous so long as there is input of hydrogen and air.


Their fuel cell can be deployed as part of a "hydrogen battery" scheme. When grid demand is low, the excess power generated from renewables such as wind and solar, can be diverted to a water electrolyser for clean hydrogen generation. This can then be stored and optimally released to the company's fuel cells at periods of peak demand (higher tariffs) to support a more flexible grid.

In the most recent half-year report (pdf via company website), Adam Bond, CEO since 2014, said: "The productisation of AFC Energy’s fuel cell system is now well underway. Delivery of the first hydrogen fueled EV charger for deployment across the UK later this year, to be followed by modular stationary off grid power systems, highlights the corner AFC Energy has now turned in taking its hydrogen power units to market. This in no small way has been driven by the acceleration of Government policy towards decarbonization of the transportation sector in parallel with the push for reduced air pollution from the off-grid power market.

The last six months has seen several important landmarks in our history, including the achievement of record electrode lives in collaboration with De Nora, further progression on the cost reduction of electrode manufacture, the bringing together of the supply chain for our systems’ mass production and the introduction of AFC Energy’s new high power density alkaline fuel cell system. I am particularly excited about the growing success in system integration we are seeing, including the potential for the steps forward in the use of ammonia as a lower cost fuel for point of use hydrogen generation, which will allow us to target new growth markets for the fuel cell, seeing AFC Energy as a leading exponent of the rapidly emerging hydrogen economy, both in the UK and internationally."

AFC 12m share price (click to enlarge)

Obviously there is huge potential in the hydrogen sector as we transition towards low carbon energy solution. The likes of AFC Energy could expand rapidly if their solutions prove to be popular but other players will enter the market as it grows so there are risks for investors.

I am encouraged by the 33% uplift in ITM Power over the past two weeks so I am prepared to modestly speculate with AFC and have added this share to my green portfolio at the price of 4.8p - as can be seen from the above chart, the share price can be very volatile...but you get an awful lot of shares for your money!

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Monday, 9 September 2019

First Solar - New Addition


First Solar (FSLR) is a leading global provider of PV solar energy solutions. They offer a cheaper alternative to conventional fossil-fuel power production such as coal or natural gas. It has a market cap. of $6.5bn, the largest in the renewable energy sector. Head office is based in Arizona and the company was first listed on the NASDAQ exchange in 2006.

The company has over 17 GW of capacity installed worldwide. Their technology is unique - rather than the conventional panels made of silicon, First Solar make use of ultra-thin panels using cadmium telluride. This PV technology displaces up to 98% of greenhouse gas emissions compared to fossil fuel generation. The modules have approximately half the carbon footprint of traditional silicon PV panels.

Furthermore, the company's focus is on utility-scale solar projects which do not rely upon state subsidies. It is involved in every stage of the process - manufacture, finance, maintenance and will recycle materials when they come to the end of their natural life.

First Solar v Nasdaq Index
(click to enlarge)

The Global Transition to Renewables

The world is rapidly transitioning toward a future powered by renewable energy. In the last five years alone, around $1.5 trillion has been invested in building renewable power generation facilities to help power the global economy. This new capacity has added 1 million megawatts (MW) to the worldwide power supply.

According to the latest Vox report, most of the world's new renewable capacity is solar photovoltaic (PV) panels. Of all the new capacity installed in 2018, 55% was solar (100GW), wind 28% and hydro 11%.


However, despite that massive spending, solar and wind still only account for less than 10% of the world's total energy use. Heating and cooling accounts for 50% of global energy usage and this is mainly natural gas and oil. Transport accounts for a third of global energy use and this is mainly petrol/diesel. Clearly if we are to meet our climate targets, transition to net zero emissions and halt global warming, this need to change quickly.


So, there is still much room for growth of solar and wind. I expect this to increase from the current 10% to 30% minimum by 2030 given the concerns about global warming and climate. Because of that, there's a big opportunity ahead to continue building more renewable power capacity, with one estimates at more than $10 trillion, to replace the current carbon-based power systems in the world's largest markets. The opportunity is even larger when factoring in population growth and the electrification of transportation.

Therefore companies such as First Solar have the potential for much further growth over the coming years. However, there will be increasing competition particularly from the fast-growing economies like China and also government interference like the recent imposition of tariffs by Trump and new regulation so the investment case is not without risks.


The company has recently introduced a new range of Series 6 panel which should boost demand and earnings for the next few years. Although the share price has had a good run over the past few months - up 40% year to date - I am hoping there will be more to come with the rise of ESG funds and the global expansion of renewables. 

With sterling having dropped to $1.23, it's probably not the ideal timing but I have decided to dip a toe in the water with my first US-listed holding at the price of $62. The shares are held in my SIPP.

As ever, this article is merely a record of my personal investment decision and should not be regarded as a recommendation - always DYOR!

Friday, 6 September 2019

Mid Wynd Trust - Full Year Results


Mid Wynd International (MWY) is a theme-based global investment trust. The strategy is to hold around 60 - 70 investments comprising between 8 to 10 themes. Current themes include Automation/Robots 14%, Emerging Market Consumer 15%, Tourism 5%, Healthcare & Immunology 17%, Online Services 16%, Low Carbon World 7%, Screen Time 11% and Scientific Equipment 6%.

The management team led by Simon Edelsten have built a portfolio of high-quality holdings which focus on a number of trends which offer the prospect of long term growth.

The shares were added to my ISA portfolio in April 2018 at the price of 474p.

Results

Mid Wynd have this week announced results for the full year to end June 2019 (link via Investegate). This has been another good year with share price total return up 15.2% compared to the All Country World Index 9.7%. Over the past 5 years, net assets have increased by 115%.

I have acquired this trust mainly for growth but it does offer a yield of around 1.0%. The total dividend for the full year will be increased by 5% to 5.83p (2018 5.55p) which is covered by revenues of 6.79p.

3 Yr Chart .. MWY v FTSE All Share
(click to enlarge)
Since acquiring these shares last year, I have written to the managers urging them to include climate as one of their themes and I am pleased to see that they have now made several additions under their Low Carbon theme...including Orsted. So, it obviously pays to ask and I am chuffed!

The managers appear to be climate-aware and avoid coal, fossil fuel stocks and the mining sector which together account for 12% of the global index. This is one of the big problems for ethical investors holding global index funds.

Low-Carbon World
Of course, one of the themes is tourism which is not so climate-friendly and I was pleased to see the managers have reduced exposure from 13% to 5% over the past 12 months. Maybe they will eliminate this theme by next year and build up Low Carbon.

Here's an extract on sustainable investing from their report :

"Over the year a number of investment houses have made much of the sustainability of their investments or of how their funds score on measures of environmental, social and governance factors. As we aim for longer term investment success, we have always included these factors in our selection process. Our interpretation of the factors is based on common sense and real-life situations, rather than any tick list or 'one-size-fits-all' screen. As an example, we think that air travel may remain essential in large Asian countries while the environmental damage of cheap flights may become unacceptable in Europe.

We are not, however, looking to change the world; and nor do we presume to have an ethical code that all would follow. Our aim is to invest in companies which prosper without damaging society or the environment. We believe that this is an aim that we share with our investors and that this perspective is, and has always been, central to the management of a successful Investment Trust".

This is early days for me, just a year and a half in. The share price is currently 595p so a rise of 25% since purchase. Having recently disposed of Scottish Mortgage Trust, I may well look to increase my holding in this trust should there be a dip in the price - which is currently at an all-time high.

But for now, this can return to the bottom drawer.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Tuesday, 3 September 2019

Vanguard Lifestrategy - Portfolio Sale


The Vanguard Lifestrategy funds have been a cornerstone of my globally diverse passive portfolio for several years. They had been on my watchlist for a couple of years prior to my first purchase of the VLS60 in May 2015.

Since I started to move my portfolio towards more climate-friendly funds last year, I was concerned about the over exposure of the funds to the oil & gas sector due to its 25% equity allocation to the FTSE All Share index. For the past 10 months, I have been in regular contact with Vanguard Investors urging them to provide some low carbon sustainable funds as an alternative for investors who wish to avoid oil stocks. Despite many assurances that they are working towards such offerings, so far nothing has materialised.

I recently learn from @ShareAction (Twitter) that Vanguard's executives in the US have been voting to prevent the directors of big oil companies such as Exxon, Dominion and Duke from facing accountability on climate. This is a big red line for me.

I therefore no longer wish to be associated with a company that protects the likes of Exxon from climate scrutiny and have decided to dispose of my Lifestrategy 40 fund and will close my Vanguard Investor ISA. I have emailed Vanguard UK to inform the management of the reasons for leaving and I hope they will pass this on to the senior executives in the US.

The funds - VLS60 and 40 - have provided a steady return over the past four years - combined is just over 40% in total, so no complaints on that score. I realise my actions will be a mere drop in the ocean but I hope Sean Hagerty and the senior executives in the US will start to take our climate emergency seriously when investors begin to withdraw their investments and assets under management start to fall.

As ever, this article is merely a record of my personal investment decision to sell and should not be regarded as a recommendation - always DYOR!

Thursday, 29 August 2019

ITM Power - Portfolio Addition


ITM Power (ITM.L) manufactures integrated hydrogen energy solutions which enhance the use of renewable energy that might otherwise be wasted. The company, founded in 2001 is based in Sheffield and floated on AIM in 2004. It has offices in Australia, Germany, France, USA and Canada.

These green energy solutions are increasingly in demand from large global companies who are keen to reduce their carbon footprint and demonstrate their commitment to the environment. ITM's solutions have many applications such as grid balancing, energy storage, and the production of green hydrogen for use in many areas of transport - buses, cars, trains, ships and planes - to replace conventional petrol/diesel, and also for renewable heat.


The electrolysis of water involves the use of renewable electrical energy, for example from a wind turbine, to separate water - H2O - into hydrogen and oxygen. The hydrogen is then used as a fuel - for example for use in transport - to replace fossil fuels or nuclear energy. Carbon dioxide emissions are reduced to almost zero. The emissions from the use of hydrogen is just water as it recombines with oxygen when used.




Furthermore, hydrogen could be used as an alternative to natural gas to heat our homes in the future. Traditional gas boilers will be banned for all new-build homes from 2025. This could be relatively inexpensive as the existing natural gas infrastructure could be used to carry the hydrogen gas instead.

The company has collaborated with Shell Energy for hydrogen refueling at their forecourts and also signed a partnership agreement with Sumitomo for multi-megawatt projects in Japan. They have recently entered into joint venture with Orsted to combine renewable wind power with green zero-carbon hydrogen which is key to decarbonising the global energy systems.

Climate Change Minister Lord Duncan said:   
"Using the power of hydrogen could help cut emissions, create jobs and make industrial processes cleaner and greener, benefitting the whole economy as we work towards net zero by 2050.   

This innovative project from ├śrsted and ITM Power will help our efforts to roll out hydrogen at scale by the 2030s - a crucial step towards the end of the UK's contribution to global warming."


This is a fairly small company with a market cap. of £120m and I therefore expect the share price to be a little volatile however, the market for green energy solutions is likely to grow at a rapid pace as more developed nations follow the lead of the UK and legislate for net zero emissions by 2050.

3 Yr Share Price

I think this company could really take off in the coming few years and have therefore added the shares to my 'green' portfolio at the purchase price of 37p. The company is due to report full year results in the very near future.


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Thursday, 22 August 2019

Scottish Mortgage Trust - Portfolio Sale


This global investment trust was added to my SIPP portfolio at the start of 2017 at the initial purchase price of 338p. A year later, following a little turbulence in the share price, I added SMT to my ISA portfolio at 415p. 

In May they issued full year results and, in my write-up, I flagged up some concern that Elon Musk's SpaceX had been added to the portfolio. For someone who is concerned about the environment, this was a red light. I subsequently established that this space exploration company was also held in my other BG holding Edinburgh Worldwide and also their recently launched American Fund.

I wrote to Baillie Gifford to express my concerns and from their lengthy response (which I won't bore you with), I concluded that BG were excited about all the potential offered by their holdings and I suspect they will be increasing this across various trusts and funds in their stable.

The Problem for Me

As I understand it, the ultimate goal of companies such as SpaceX is to revolutionise space exploration and enable humans to live on other planets such as Mars. In a bizarre article in the Independent this week, Musk said he wanted to "Nuke Mars" as part of a plan to make the planet habitable with a view to establishing a city and colonising Mars by 2050. Musk suggests that colonising the red planet is essential for our survival.

Musk launches Tesla into space
Of course, Musk is not the only rich entrepreneur engaged in these fantasies. Amazon CEO, Jeff Bezos has Blue Origin which is looking to make space travel more feasible. Our own Richard Branson has recently announced plans to float his Virgin Galactic on the New York stock exchange and be the first business to provide commercial space travel.

You don't need a degree in rocket science to understand the environmental impact of all the emissions generated from these activities. Thousands of test rockets are injecting harmful emissions high into our upper atmosphere which is adding to warming and also depleting the ozone layer over the polar regions.

Jeff Bezos and Blue Origin
I guess a lot of people think it's 'cool' for these billionaire entrepreneurs to try to outdo each other in the race for space dominance. Personally, I think it's just plain stupid and the height of human folly when so much effort is required to prevent global warming and when so many young people are doing everything to address our climate emergency.

These people are spending billions of dollars on finding solutions to living on another planet. I prefer to find solutions to continuing to live on this planet.

To Conclude

So, time to say goodbye to one of my largest global managed trusts.

The sale price was 542p which represents a rise of 17% year to-date. I have had a good run with SMT over the past few years - a total return of 65% on my SIPP investment and 32% for my ISA. I am sorry to have to give it up as my intention would normally be to hold for the longer term. However, for me, profit is not the only consideration and I like to think my investments are making a positive contribution to the world. 

Therefore I just do not feel at all comfortable holding a fund which has SpaceX and possibly similar holdings and certainly do not want to profit from organisations which trash the environment and pollute space with junk just like we fill our oceans with single-use plastics. As they say on Dragon's Den..."I'm Out".



The proceeds will remain in cash for the time being whilst I think about where to reinvest the money and explore other options.

As ever, this article is merely a record of my personal investment decision to sell and should not be regarded as a recommendation - always DYOR!

Monday, 12 August 2019

Legal & General Revisited


L&G is a large FTSE 100 company with a market cap of £14bn employing over 8,000 people serving 10 million customers. It is the UK's largest life insurer and has assets under management of over £1 trillion.

The shares were first acquired for my income portfolio back in 2014 and held for several years until a change of strategy prompted a sale in 2017. 

However, I tend to keep tabs on various investments held over the years and I have decided to embrace the shares once more as I wish to support companies that are making a positive contribution on the climate front especially those on the same page as myself in relation to coal and oil stocks.

Climate Divesting

In 2016, the company introduced its Climate Impact Pledge including a commitment to engage with the world's largest companies in six sectors which are key to meeting climate change goals in accordance with the Paris Agreement. These are oil & gas, mining, electric utilities, autos, food retail and financial.

The company's investment management arm, LGIM takes its responsibilities towards sustainable strategy very seriously and will frequently push the boards of the large multinationals to comply with obligations under the Paris Agreement.
However, when these companies fail to respond in a positive way, action has to be taken and LGIM are now starting to adopt a more aggressive response by divesting away from these companies.

Head of commodities research, Nick Stansbury has developed a model to rank the companies most at risk from the climate emergency. He has deep misgivings about the future of oil and says “Uncertainty around the level of demand growth creates massive instability in the way oil markets work, and that has all sorts of implications for investors"

LGIM started to divest some oil stocks in 2018 and have continued to drop some of the larger players in recent months. As an example, in June LGIM announced it had sold off $300 million of shares in Exxon Mobil and use its remaining holding to vote against the reappointment of CEO Darren Woods. LGIM is one of Exxon's top 20 shareholders.

This is the sort of action which is most likely to have influence in the boardrooms where big decisions are being taken so I want to support L&G in their endeavours.

Results

The other reason for taking another look at the shares is the recent share price weakness and increasingly attractive dividend. 

Last week the company announced interim results showing profits up 11% to £1bn and half-year dividend up 7% to 4.93p which puts the shares on a fwd yield of 7% at my current purchase price of 240p.

The company are working towards a low carbon future and head of Sustainability and Responsibility Strategy, Omi Meryam has recently set out a comprehensive action plan and says "Climate change carries significant financial risks, so protecting the planet and protecting our clients’ investments go hand-in-hand".

Conclusion

I decided to give up on holding individual shares some time back as I moved toward the globally diverse index funds such as Vanguard Lifestrategy. However, as I now look more closely at the environmental and climate-related aspects of these large index funds, I am becoming more circumspect. I do not expect to be adding many more single company shares but, at the same time, do not have a hard and fast rule about not holding them and remain open to opportunities when the circumstances appear attractive.

One Year Performance v FTSE All Share Index
(click to enlarge)

L&G is the UK's largest defined contribution pension manager following the introduction of auto enrolment and serves 3.4 million workplace customers. The share price was approaching 300p not so long back so I believe they offer the potential for significant capital appreciation, maybe after Brexit is resolved, and in the meantime I can sit back and gather a nice 7% dividend income tax free in my ISA.


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Thursday, 8 August 2019

Orsted - Half-Year Results


This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity and operations in Denmark, UK, Germany and Holland. It also operates several wind farms outside of Europe in the US and also Taiwan. The company's vision is to see a world run entirely on renewable energy.

The shares were added to my portfolio in April at 495 DKK and have advanced nicely over the past few months to 630 DKK. They also now feature in some of my other holdings - Mid Wynd Trust and Baillie Gifford Positive Change.

Renewable energy is very much in the ascendancy due to concerns about our climate emergency. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition from fossil fuels to low-carbon clean energy.

Results

The company has today announced half year results to June 2019. Operating profits increased to DKK 8.8bn (2018 8.5bn) and expectations for the full year are well on track.

CEO and President Henrik Poulsen says:
"2019 has been a very good year for ├śrsted so far. Operating profit for the first half of the year amounted to DKK 8.8 billion, which was in line with our expectations and keeps us well on track to deliver on our full-year guidance of DKK 15.5-16.5 billion.  
We were selected as preferred bidder in the auctions in both New Jersey with our Ocean Wind project (1.1GW) and New York with the Sunrise Wind project (880MW) which we own in a JV with Eversource. Subject to final investment decisions, the wind farms are expected to be completed by 2024. We are very pleased with these awards and are well on track to reach our ambition of 15GW offshore wind capacity by 2025 as we continue to pioneer the global offshore wind industry.
In June, we officially inaugurated the Borkum Riffgrund 2 offshore wind farm in Germany and in July, we commissioned the Lockett onshore wind farm in the US well ahead of schedule.
In June, we acquired the 103MW construction-ready onshore wind project Willow Creek in South Dakota in the US. The project is expected to be commissioned by Q4 2020 and will expand our operations in the Southwest Power Pool market, covering the central US".

The share price has increased by 27% since purchase to DKK 630 and this is the second largest holding in my 'green' portfolio.

The shares yield around 1.7% based on the current price.

Share Price past 6 months

Green Transition

In the North Sea, 131 turbines have been installed and Hornsea 1 is due to be completed later this year and will become the world's largest offshore wind farm with a capacity of 1,218MW. Work has started on Hornsea 2 which is due for completion in 2022.

The company is on track to be carbon-free by 2025 and have plans for the sale of the remaining gas and fossil-based power operations which make up around 18% of the business. They have announced plans to phase out their company fleet of petrol/diesel cars and replace them will fully electric by 2025. The company has a strong commitment to the Paris Agreement and the UN Sustainable Development Goals.

The company has set ambitious targets to reduce greenhouse gas emissions in their supply chain by 50% by 2032.


So, although there are the inevitable currency considerations and the higher risks associated with single share ownership, I am happy with progress so far but it's early days.

The company is awaiting the outcome of various tenders on new projects in the US, Taiwan and Europe and news should unfold later this year. So, fingers crossed.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Monday, 5 August 2019

iShares MSCI World ESG Enhanced ETF


I have been on the look out for a more globally diverse, ethically orientated fund for a little while and recently found this new ETF from iShares launched in April (ticker EDMW).

It is basically a developed world index fund however the fund rules out companies involved in unethical businesses such as weapons, landmines and tobacco for example. It also excludes companies involved in coal production and oil sands. It also scores the remaining constituents according to environmental, social and governance criteria - ESG - and therefore companies which may be smaller but come out with a higher score will get a larger weighting in the overall portfolio.

For example, one of my individual shareholdings Orsted, a global leader in offshore wind gets a higher percentage weighting 0.14%, than much larger companies such as Mondalez or Kellogg for example. By comparison the weighting for this company with my Vanguard SRI is just 0.03%.

Here's a short extract from the MSCI website:

"In recent years ESG investing trends have been driven by more investors seeking not only social benefits but also managing financial risks and opportunities. In fact, a recent survey indicated that most asset owners surveyed see the management of financial risks as the key benefit of ESG. In addition, after the COP 21 conference in 2015, many investors came to realize that climate change is not only an environmental topic but also a financial risk that will very likely have a material impact on many companies’ profitability during the global transition toward a low carbon economy. An estimated $25 trillion invested in carbon-related infrastructure is thought to be at risk from this transition".

The MSCI range of indexes measure the carbon intensity of each index to assist investors who wish to take such matters into consideration. They measure the carbon intensity for each company in the index and this can then be used for portfolio weighting. The global average is 198.3 tons of CO2e per million $ of sales. With this ESG fund, the figure is 120.7.


Here is a comparison of weighting of the large oil companies with my Vanguard SRI Global which I covered back in February. I am not sure why some companies such as Shell are held in the Vanguard fund and not the other whilst BP is in the iShares fund but not Vanguard.



Ideally I am looking for a global index fund that excludes these big oil company shares as well as some of the other high carbon polluting industries such as airlines and meat production - a truely climate-friendly alternative. It would be even better if it was multi-asset fund including government and green bonds! But for now this may be as close as I am going to get other than the managed options.

I have been asking my broker AJ Bell to list this ETF for a while. They initially told me they could set something up if I had £85,000 to invest however, after getting iShares involved, I have now had confirmation that they will now agree to do this for ordinary investors to purchase...thanks but it really should not be so difficult for investors to hold ESG funds!

I now need to do a little more research and also assess whether right now is the best time to invest in more equities given the rise of the markets and the fall in sterling compared to the US dollar.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Monday, 29 July 2019

My Concerns About Investing in Fossil Fuels


Oil and coal, more recently natural gas have driven the global economy for the past 200 years. As recently as 2008, coal generated half of our electricity in the UK. However we are now entering a new age for power generation in response to the global climate emergency. The transition to clean energy such as hydro, wind and solar is well underway and will be disruptive.


Due to the activities of climate protestors such as Greta Thunberg, the oil industry can no longer maintain its 'business as usual' approach. The same goes for sectors dependent on oil as well as the banks who finance their operations and also their insurers who underwrite the risks.

The Transition

The oil industry now appears to accept the science of global warming but they maintain that the demand for fossil fuels will be there for several decades and this justifies their policy to continue with exploration for new oil fields and finding new areas to drill such as the Arctic. Investors who may well be sympathetic to the climate arguments, may well agree the transition will be a long and gradual process and therefore continue with a balanced allocation which contain oil and gas stocks - now renamed as 'non-renewable' energy.

However, I would suggest the transition is moving much more quickly than the oil industry cares to acknowledge. Governments around the world are developing policies to deliver a carbon-neutral economy by 2050. To achieve this, they will need to implement policies now to have any chance of meeting their goal. Here in the UK for example, there will be no more gas central heating boilers in new properties from 2025; coal-fired power stations will be history at the same date.

In a recent announcement, the European Investment Bank says it will no longer fund fossil fuel companies after 2020 as it aligns its strategy with IPCC climate targets. The UK government is now coming under intense pressure to stop providing finance to fossil fuel developments via its UK Export Finance agency. The tap is being turned off to an industry which is preventing the world from hitting its GHG reduction targets.

Secondly, the costs of renewables have fallen dramatically in recent years. It is now cheaper to generate electricity from wind and solar compared to traditional fossil fuels or nuclear. Introduce new battery technology to even out the lack of continuity associated with limitations of renewable generation, and it's difficult to make the case for new fossil fuel generation just on cost considerations alone.

As weather patterns - heatwaves, drought, wildfires, hurricanes - become more extreme, public opinion will harden against the fossil fuel industry.

There is no doubt about the transition from the old oil-based economy to the new, clean renewable energy economy. What is not clear at present is when the tipping point is reached. After this point, the old economy will fall away very quickly.
As can be seen from the chart covering the past 5 years, the commodities and oil sector has not performed well compared to the global equities market represented by the Vanguard fund.

Global Equities v Commodities & Energy Sector

How Will Investments be Impacted

As many readers know, the investing process is cyclical - some sectors do well one year and others another year. There is a reversion to mean - equities will outperform bonds for a period and this is reversed as government bonds provide stability during periods of uncertainty. The general advice to investors is to hold a diverse mix of assets.

However, the energy transition is not cyclical but structural - its a one way process which has implications for investors because the transition will cross the tipping point which will mean changes will happen far quicker than 'experts' predict and therefore relying on past performance will carry significant risks. The billions of dollars still being ploughed into coal, oil and gas projects will become a liability to the lenders and their insurers as these have a high risk of default and a legacy of worthless stranded assets. There are many examples throughout history where new technology has disrupted the traditional way of doing things.
 
Walney Extension Cumbria
providing clean power for 1.2m homes
Of course, the smart operators will have already adapted to the changes in energy. For example, one of my recent acquisitions, Orsted has transformed itself over the past decade from oil, gas and coal business under its previous name DONG (Danish Oil & Natural Gas) to become the world leader in offshore wind. Shell are trying to take tentative steps away from the oil and gas sector and into biofuels, carbon capture and wind/solar. They have signed a 5 year deal with BSR to provide solar power for its renewables arm Shell Energy. However 98% of their global operation is focussed on traditional oil & gas so I'm not sure how easy it would be to transform a global oil major or indeed how committed they really are to clean energy. Shareholders should certainly be concerned and pushing for change.

The projection for demand for their products from the oil majors is well into the 2040s but these projections have been overly optimistic in the past. I personally suspect we are already close to peak oil and the coming decade could well see a steep decline in all forms of coal/oil extraction which we simple cannot afford to use if we are to limit global warming to 1.5C or even 2.0C as recommended by the IPCC.

Conclusion

In February, I put my multi-asset global index funds under the spotlight and was a little surprised to see the level of exposure to oil majors in my Vanguard Lifestrategy compared to the HSBC Global Strategy. Since then I have made several changes to my portfolio to reduce this exposure to fossil fuel investments.

As I re-position my portfolio towards more climate-friendly funds, I am naturally looking to filter out coal, oil and gas however, with my global index funds, this is not so easy. Even the so called ESG 'green' options all hold oil majors such as Exxon Mobil, Shell and Chevron for example. My Vanguard Lifestrategy has 25% of its equity portion invested in the FTSE All Share index which has a high exposure to the likes of Shell and BP - currently 18% - so I have repeatedly asked Vanguard UK to consider lowering the allocation to UK equities and also to introduce some climate-friendly alternatives. Nothing so far...

I remember back in 2007/08, the investing community ignored or under-appreciated the risks posed by the sub-prime mortgage crisis in the US which led to the global market crash and governments having to bail out the major banks to prevent them going under. The effects are still being worked through a decade later. My concern is this could happen on a bigger scale as investors and lenders fail to appreciate the risks associated with this global energy transition. We have  President Trump who is openly skeptical about climate change and very supportive of coal, oil and gas - he could well be in power for another 5 years.

The past 5 years have been the warmest on record and it's looking likely this trend will continue and 2019 will be the second warmest on record as the heatwave rips across Europe and the Arctic wildfires burn for weeks. Its a paradox that these past few years will most likely be the coolest of the next 50 years due to the accumulated CO2 playing out through the system.

So, I will look to further divest fossil fuels and embrace the clean energy of the future. Hopefully the likes of Vanguard and Blackrock will respond to investor demands for climate-friendly funds and I hope readers will lobby their fund managers to offer environmentally friendly alternatives. I will keep a little more cash in reserve to maybe take advantage of any sudden downturn in the markets.

Feel free to share any thoughts on the energy transition in the comments below - all opinions and views welcome as ever.