Sunday, 16 May 2021

A Fossil-Free Option from Vanguard...At Last!


Vanguard are one of the world's largest fund managers with assets under management of $7 trillion, however they have been late to the ESG party. But better late than never I suppose, Vanguard UK have finally come around to offering funds which should be more acceptable to investors who prefer to avoid fossil fuel companies...something I have been pressing them to do for some time now.

The ESG Global All Cap (V3AM) is a passive index exchange traded fund (ETF) launched on the UK market in March 2021. The fund tracks the FTSE Global All Cap Choice Index which is basically the Global All Cap index which is then screened to exclude those companies which do not meet certain environmental, social or governance criteria (ESG). The index will therefore exclude:

1. Companies which do not meet standards on human rights, the environment and anti-corruption;

2. Non-renewable energy - basically companies involved in coal, oil and gas;

3. Vice products such as adult entertainment, alcohol, tobacco and gambling;

4. Weapons and landmines

Fund charges are 0.24% and platform charges to hold with Vanguard Investor are an additional 0.15%.

The fund has just under 5,000 holdings - large, medium and small from all around the globe. Unsurprisingly, US-listed companies account for 60% of the fund, Japan 7%, China 6% and the whole UK-listed shares less than Apple... just 3.2%.

Some top holdings include Apple (3.4%), Microsoft (3.1%), Amazon (2.4%), Google (2.3%), Facebook (1.3%), Tesla (0.9%) and JP Morgan Chase (0.8%).

Dividends will be paid quarterly.

I disposed of my Vanguard Lifestrategy funds in 2019 as I started to expand my green portfolio. In 2020 I added the iShares World SRI ETF as a partial replacement for the global equity element provided by the Lifestrategy funds. So I am pleased to see Vanguard introducing this climate-friendlier option for investors who are concerned about climate change and wish to avoid fossil fuel companies.

Having said that, ESG funds are a drop in the ocean compared to Vanguards massive traditional index funds. Current assets for this ETF fund are just $31m compared to $8bn for their All World ETF (VWRL). Vanguard therefore remain under fire from environmental organisations... they are the world's largest investor in the coal industry for example with holdings in over 200 coal operations worth a combined $86bn according to Reclaim Finance.

Last year CEO of Blackrock, Larry Fink said "Climate change has become a defining factor in companies' long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital"

The large pension funds, local authorities and institutional investors are increasingly realising that they can no longer remain passive when it comes to addressing the existential threat of climate change. They demand the choice of avoiding fossil fuel companies and it looks like Vanguard have finally got the message.

I will consider adding this Vanguard fund to my list of future possibilities to sit alongside my iShares fund. Now we just need an ESG version of the Lifestrategy fund...I'm not holding my breath!

It will be interesting to see how these ESG funds attract investors money compared to the more traditional index funds. Would you consider exchanging your VWRL for V3AM?

Wednesday, 28 April 2021

Gresham House Energy Storage - Full Yr Results


Since its launch in December 2018, Gresham House Energy Storage (GRID) has developed the largest energy storage portfolio in the country. It operates 16 utility-scale energy storage systems with a total combined capacity of 425MW.

As we transition from fossil fuel generation to renewables such as wind and solar, we will increasingly need energy storage solutions due to the intermittent nature of renewable energy - the wind doesn't always blow and there's not much solar in the Winter months. Currently we use gas fired generation to fill the gap but we have legislated for net zero carbon emissions by 2050 (78% reduction by 2035) so the ability to store excess energy from an ever increasing renewables sector will be essential. As renewable capacity expands, gas-fired power stations will be required less frequently and so they become less profitable to run. This means that renewables are forcing fossil fuels off the grid.

As recently as 2014, coal was our main source of electricity generation. It is still used in the winter months but currently accounts for just 2% of  generation and is due to be completely retired by 2024.

GRID has several streams of revenue which include the wholesale market and National Grid balancing mechanism, Firm Frequency Response based on small-scale changes to the grid's electrical frequency, fixed fees for being on call to deliver power at times of extreme need and Triad payments from National Grid when there is peak demand. 

50MW Thurcroft Facility

Results

The company have this week released results for the full year to end December 2020 (link via Investegate). Net Assets have increased by 8.4% over the year on a total return basis to 102.9p and share price return is up 10.8% compared to FTSE All Share Index fall of -9.8%.

Over the year, the company has acquired three more storage projects with a total capacity of 141MW. This additional capacity has boosted annual revenues from £10m in 2019 to 19m. In recent months, these revenues have increased due to the introduction of National Grid's Dynamic Containment (DC) service last October. This aims to provide more resilience to the grid supply and reduce volatility to provide a better balancing mechanism. Despite only starting in October, DC has accounted for 33% of GRID's revenues for this year.

National Grid are starting to appreciate the value of battery storage to balance the national system and in January 2021 announced an increase in DC to 1.4GW by May 2021 compared to just 500MW in December 2020. Recent trials with batteries have shown that they can provide back-up in the same way as gas turbines are used to balance the system and reduce the curtailment of renewable energy. If National Grid decide to make this a permanent feature following further trials, it is likely to lead to significant revenue opportunities for GRID.

Construction is due to start soon on a further 275MW of storage capacity and looking further ahead, the manager has identified a further 527MW of additional pipeline projects.

Commenting on the results, lead investment manager Ben Guest said:

"The UK's global leadership in renewable generation and in its setting of ambitious decarbonisation targets, continues to make it one of the world's most attractive markets for deployment of utility-scale battery storage technology. We are encouraged by the system operator, National Grid, continuing to test and facilitate new ways for battery storage to contribute to system balancing.

"More renewable energy on the system will inevitably lead to more intraday power price volatility, driving the improved revenues and profit from trading which GRID is best positioned to capture. We are intent on driving shareholder value by maximising project returns through our portfolio scale as well as operational and cost leadership, while striving to reduce our cost of capital, including through a potential new debt facility."

The company has paid a total dividend of 7.0p over the past year as promised and has maintained this target for 2021. This gives an attractive yield of 6.1% to those investors looking for income.

GRID 1 Yr Share Price
(click to enlarge)

I added this trust to my green portfolio in December 2019 at the price of 105p...its currently 115p and continues to trade at a significant premium to net assets.

Obviously this is still early days for this relatively new venture. The UK only has around 1.5GW of storage but this is expected increase to 10GW over the next 4 years so there should be plenty of opportunities for GRID to expand it's business. The focus so far has been batteries but I am wondering whether they have considered other energy storage solutions such as flow batteries or green hydrogen as these also has lots of potential.

The reality is that fossil fuel generation will gradually be replaced by renewables as we move towards our net zero target by 2050. This means increasing intermittency which will require ways to store energy to bridge the gaps and provide a constant supply.

In the past few months I have been scaling back my exposure to the UK renewable infrastructure sector but will retain my holding in GRID as it does not appear to be so affected by power prices. So, one to put back in the bottom drawer pending further developments.

The shares account for 3% of my green portfolio.

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, 1 April 2021

Portfolio Review - End March 2021


Well, what a dramatic year. We went into a global lockdown last March, eased up during the summer months and then we were hit by a deeper second wave during the winter months as new cases rose exponentially, hospitals were severely stretched and deaths here in the UK rose to over 125,000. Clearly we have experienced a global pandemic crisis which has a social impact not seen since the second world war. This experience will remain long in our memory banks.

Naturally there has been volatility on the markets, especially the initial shock. In March last year the FTSE saw its largest one-day fall - 10.8% - since 1987 with a similar pull-back in the US where the Dow Jones recorded its biggest one day points fall of over 3,000. Then, a week later, the FTSE records its biggest one-day points jump of 452 and the Dow Jones climbs a record 2,100 points and the biggest gain for 90 years...remarkable...the global markets don't get any more dramatic than this. However, despite the pandemic, the markets turned out to be remarkably resilient and have weathered the storm well...so far.

Portfolio Changes

The turbulence last year provided an opportunity to pick up a few bargains and the likes of Google, Microsoft, McPhy, Ceres Power, Nibe and Tesla were added to my portfolio. Later in the year following the election of Joe Biden I added Plug Power, Enphase and SolarEdge as well as the more eco-friendly global index fund, iShares World SRI ETF.

In the past few months I have sold down my government bonds and Tesla and also reduced my renewable infrastructure sector. The proceeds have been used to top up several of my clean energy holdings including Vestas Wind, Orsted, Enphase and SolarEdge and also add the likes of the new L&G Hydrogen ETF.

Portfolio Returns

By the end of 2020, the FTSE 100 had lost 11% for the year and stood at 6,460. It has since risen to currently 6,750 or 4.5% plus dividends. Looking more widely, my iShares World SRI fund is up 5.4% over the first quarter.

Although no longer a part of my portfolio due to fossil fuel holdings, the Vanguard Lifestrategy 60 fund is a diverse mix of global equities and bonds and provides a good benchmark for a balanced global portfolio. The fund is up 0.9% over the past 3 months.

I had my best ever year in 2020 with a total return of 44% and over 50% from my green portfolio holdings so I have been expecting some correction or pull-back in the new year. The past couple of months have seen quite a bit of volatility in the technology sector and my clean energy holdings seem to have been caught up as well. As a whole my portfolio is down 7.2% over the quarter.

Green Funds

These holdings now make up around 85% of the total portfolio. They mostly had a stellar 2020 but have fallen back around 10% to 15% over the past couple of months. 

However, over the full year since last March many are showing remarkable gains - 

ITM Power share price was 110p last year and currently 470p, a gain of 325%, 

Ceres Power was 325p and now 1250p, gain 280%, 

McPhy was €4.60 and now €32.60 a gain of 590%, 

Enphase was $29.77 and now $162 gain 444% and 

Plug Power $3.30 a year back and now $35.80 gain 980%. 

Past 12m for Ceres and ITM Power
(click image to enlarge)

However over the past 3 months most of these shares are down...ITM  -9%, Ceres down 5%, McPhy down 11%, Enphase down 11% and only Plug gaining 8%.

So I am hoping this is a short-term correction and these holdings can get back on the rising escalator over the rest of this year and beyond.

Conclusion

It is getting on for 30 months since I started to move my portfolio towards more climate-friendly investments and it is reassuring to see they have held up reasonably well during this past year. I certainly feel much better investing in the likes of Orsted, a global leader in offshore wind, rather index funds with their fossil fuel companies and the big banks that finance their operations.

Our attention has been very much focused on Covid this past year but with a vaccine roll-out now underway I am hoping we can move on to tackle the far bigger crisis of climate change. There are encouraging signs that the global leaders are starting to sing from the same hymn sheet and work out how to cooperate to reduce emissions and meet the goals of the Paris Agreement to limit warming well below 2.0C. The transition from fossil fuels to clean energy is well underway. Huge amounts of financial support is being directed into this area as governments move to decarbonise their economies and this along with policy shifts should support the growth of those companies trying to provide some of the solutions to this climate emergency. 

Let's see how the rest of the year unfolds..."Survival as an investor over that famous long course depends from the very first on recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain". (Peter Bernstein)

Take it easy...have a lovely Easter!

As always, if you keep track of portfolio returns, feel free to leave a comment and share with others how your investments have fared over recent months.

Monday, 22 March 2021

iShares Global Clean Energy ETF - Update


This exchange traded fund gives investors an opportunity to invest in a range of globally diverse companies involved in renewable energy.

It is an index fund and tracks the S&P Global Clean Energy Index which is made up of 30 of the worlds leading companies in the clean energy sector.

Why Clean Energy?

It is estimated that at least 50% of the world's energy will come from renewables such as solar and wind by 2050. This compares to around 7% just 6 years ago. In order to implement the Paris Agreement and limit global warming to well below 2C, governments around the world will need to invest huge amounts of capital - estimated over $3 trillion - over the coming decade and this obviously provides significant opportunities for the renewables industries.

Climate change and scarcity of resources is one of 5 megatrends identified by Blackrock which will shape the future.

The fund was added to my green portfolio in March 2019, shortly after I put my index funds under the spotlight and decided to move my portfolio away from fossil fuels. My initial purchase price was 433p and I topped up my holding during the Covid sell-off last March at 435p. The shares are held in my SIPP drawdown and also my ISA with AJ Bell Youinvest.

Fund Holdings

The ETF fund holdings include :

Plug Power (8.5%) a leading provider of fuel-cell engines and hydrogen-based solutions in the US. Some high profile customers include Amazon, BMW, IKEA, Walmart and Carrefour. The share price has grown rapidly over the past 12 months - under $4 last March to currently $39.

Enphase (5.8%) a global energy technology company and the worlds leading supplier of solar microinverters. these connect solar generation, storage and management on one intelligent platform. 

Solaredge Technologies (3.7%) another Nasdaq-listed US company providing inverter solutions across all segments of the solar PV market.

Vestas Wind (4.1%) and Orsted (4.1%) both of which I also hold as stand-alone holdings in my green portfolio.

Siemens Gamesa (4.6%) a Spanish-based renewable engineering company involved in the manufacturing of wind turbines and related servicing. Their products have been installed in over 90 countries all around the world with a current combined capacity of 100GW.

Returns

The fund had an amazing run over the past year moving from £4.00 last March and reaching a high point of £14.00 in mid February 2021 but there has been a significant pull-back over recent weeks with the share price falling back around 30%. At the current price of 985p my total return has been 127% for the year including dividends of 5.7p which gives a yield of 0.6% and subject to exchange fluctuations.

One Year Share Price INRG v RDSB
(click to enlarge)

I am hoping the set back in recent weeks is a temporary correction after such a good run but this is an emerging sector and I am prepared for some further volatility. However, over the longer term, my view is that the global renewable energy sector is likely to see continued growth as the world attempts to address the climate crisis and move to curb carbon emissions. We are weaning our economies off fossil fuels and the transition to clean energy such as wind, solar and wave power is well underway and likely to accelerate. As can be seen from the chart above, the global renewables represented by INRG has performed much better than the oil sector represented by RDSB.

I have taken a punt on a few individual companies such as Orsted, Ceres Power and Vestas Wind, Enphase and Plug Power for example but a diversified approach with the likes of this ETF probably makes more sense so I am very happy to continue holding these shares which currently make up around 10% of my green portfolio.

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!