Aquila European Renewables Trust - New Addition

I was encouraged to read last week that here in the UK, clean energy has now overtaken fossil fuels for the first time since the industrial revolution. In just the past decade, power from coal has declined from 30% to just 3% whilst wind power has increased from 1% to 19%.

According to BP's recent global energy outlook, renewable energy such as wind, hydro and solar will be the world's main source of power within two decades. In Europe, that could easily account for over 50% of energy supplies and the transition from fossil fuels to renewables is likely to speed up now that the EU is looking to follow the UK and target net zero carbon emissions by 2050. Personally, I think 50% by 2040 is conservative and could easily rise to 80% or even 90% as the world wakes up to the threats posed from the climate emergency.

This transition will support the expansion of the renewable energy industry and, having already re-jigged my portfolio to embrace this shift, I decided to add this recently floated trust to my green section as it offers more exposure to the European renewables market.

The newly launched fund is managed by Christine Brockwell of Hamburg based Aquila Capital and supported by a 40-strong research team. The firm has a long-standing commitment to ESG and sustainable values. It has assets in excess of £7 bn and has several renewable assets earmarked for this new fund which raised £140 million from its IPO earlier this month. The pipeline includes wind (33%), solar (40%+) and hydro projects (20%) spread far and wide - Sweden, Norway, Finland, Denmark, Germany, Spain and Portugal but excluding the UK. Once fully invested, the fund is targeting a total return of 6% - 7.5% and will aim to pay a dividend of 5%.

 

Small Scale Hydropower

I have some exposure to European renewable energy via the likes of TRIG with its assets in Sweden and France, also my ETF in iShares Global Clean Energy holds Siemens Gamesa based in Spain and Vestas Wind of Denmark. I also hold shares in Orsted of Denmark so I am hoping this trust will compliment these investments.

The shares are listed on the LSE but denominated in Euros so there will be currency exchange considerations in relation to the purchase and subsequent dividends. My initial purchase price was 92p (1.02 EUR) - sterling version AERS - and I am hoping for a first dividend payment later this year of around 1.5%. Most of the trusts in this sector trade at a significant premium to net assets so hopefully this will be the case for the Aquila fund and the share price will rise when the value of the assets are evaluated.

Ongoing charges are 0.75% which is modest for the renewables infrastructure sector and also there is no performance fee.

I think the politicians and policy makers have realised we need to speed up the transition from fossil fuels to renewables to achieve net zero carbon emissions by 2050 As this unfolds over the coming decade or so, the beneficiaries should clearly be those producing energy from solar, wind and hydro. 

This addition takes my 'green' allocation to 45% of my total 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!

SIPP Drawdown - Year 7 Update

Wild Honeysuckle (Clunton, Shropshire)

It's June, another 12 months has rolled by so it must be time to review my SIPP drawdown portfolio at the end of its seventh anniversary. Here’s a link to the previous update of June 2018.

The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income which I calculated should be sustainable over the longer term without depleting the capital. This would bridge the 10 year gap between early retirement at age 55 yrs and state pension.

Last year my state pension kicked in so I am no longer reliant on income from my SIPP which means I have more flexibility on investment choices.

Portfolio Changes

My efforts to move towards a more climate-friendly portfolio are well documented and this includes my drawdown portfolio so there have been a quite few changes over the past 12 months. My main considerations are to avoid fossil fuel companies - and therefore the sale of Vanguard LS 60 (high weighting to FTSE), City of London, Aberforth Smaller and Edinburgh - and also to support renewable energy and other environmentally friendly funds which are more aligned with my values. Hence the introduction of Bluefield Solar, TRIG, iShares Clean Energy ETF and also Vanguard SRI Global.

I am currently mulling over the sale of Scottish Mortgage Trust as I see from the latest annual report that it has recently acquired a holding in Elon Musk's SpaceX.

As I no longer need to take an income from my SIPP, I can now dispense with the cash buffer of around £4,000 or 10% of the Vanguard fund and this has now been fully invested.

Performance

So far this year the markets appear to brush aside the political uncertainty of Brexit and the tensions arising from trade wars between USA and China <cue market correction>. There was a brief dip in the FTSE below 7,000 in December/January followed by a quick rebound but this is nothing more than normal market volatility. Over the 12 months, the FTSE 100 has seen a modest decline of 2.5% from 7,631 to currently 7,443...but maybe a gain of 1.5% total return including dividends. My SIPP portfolio is now more fully invested and it is pleasing to see a modest gain of 4.4% over the year. This includes all transaction costs resulting from portfolio churn.

With so many sales/purchases, it's difficult to compare the years performance for individual elements however HSBC Global Strategy Balanced made a gain of 5.0%, Vanguard LS 40 a gain of 5.7% and Capital Gearing a gain of 6.7% including dividends.

Here is the portfolio

(click to enlarge)

Comparisons

In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,443 - a gain of 35%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 62%

When I started my drawdown in June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £191 - a gain of 82% or annualised average of 8.9% p.a.

Taking account of the income withdrawn over the past 7 years of £19,400, the total return including income is 84.7% which is very satisfactory and works out at an average annualised return of 9.2% p.a.

State Pension

For most of the past decade I have relied upon income from my SIPP to supplement my ISA income and bridge the 10 year gap between early retirement at age 55 yrs and state pension. This part of the journey is now 'mission accomplished'.

My state pension has now been in payment for just over a year which is long enough for me to know that I do not need to continue with drawdown from my SIPP...although I can always dip in at any time for a lump sum withdrawal if required. I will therefore be less reliant on the income from my SIPP for essential living costs and it will become more for discretionary spending or more likely remain invested. Unlike an annuity which, once purchased means the capital lump sum is lost forever, any residue in my SIPP will pass on to my children and grandkids...tax free if I go before 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

Conclusion

Obviously I am reasonably happy with my first few years of self-managing a flexi-drawdown sipp portfolio. For the first few years, the dividend income predictably rolled in much as planned and importantly, increased each year a little ahead of inflation. During the next three years I have withdrawn significant lump sums tax free and placed the excess which I did not require for income in my ISA. Of course, there are no tax liabilities for all monies subsequently withdrawn from my ISA.

I now need little or no income from my SIPP in the future and will therefore focus on longer term growth combined with environmentally responsible options. As I am no longer depleting the capital, this should hopefully grow much the same as during the accumulation phase before drawdown and in the knowledge the pot can be inherited by children and grandchildren possibly tax-free at some point in the future.

For me, the big advantage of the SIPP is the flexibility it offers. I started off with a portfolio of income-generating investment trusts and PIBS. I then introduced the multi-asset, globally diverse index funds such as Lifestrategy and now I can sell the funds which are not required and replace with more climate-friendly options to satisfy my desire to do my bit for the environment. I can also withdraw as much or as little cash as needed.

What's not to like!

If you are managing your SIPP - accumulation or drawdown - or you are planning to do this, feel free to share your experience in the comments below.

TR Property - Final Results

I hold this property trust in my ISA and also my Sipp drawdown portfolio. It is a little different to most property funds in that it mainly holds the shares of other property companies and has just 8% of the portfolio in property directly. This has advantages regarding flexibility and lower costs.

The fund is managed by Thames River and aims to maximise total return by investing in international property shares and direct property mostly in the south east of UK. Manager, Marcus Phayre-Mudge has been involved in property investment since 1992 and has been involved in running the Investment Trust since 2004.

At the end of April the largest geographic exposure was a 39% weighting in UK property shares and a further 8% in direct property, then property shares in European companies - France making up a further 15%, Sweden 9% and Germany 30%. 

Retail and office space accounted for 22% and 31% respectively, with another 33% in residential and the remainder divided between industrials and diversified such as student accommodation and storage.

Results

The trust has recently published results for the full year to end March 2019 (link via Investegate). Net asset total return has increased by 9.1% (last year 15.5%) and share price by 6.2%.

Commenting on the results, chairman Hugh Seaborn said:

"In an environment where investors are seeking income, property benefits from the characteristic of offering relatively high income returns, often growing with inflation. Our Manager continue to focus on real estate businesses in areas and sectors which offer the likelihood of rental growth. The divergence in performance between companies with those attributes and the remainder has widened to record levels. This does create the risk of the most popular names becoming overbought and the least popular are at risk of being oversold. Our Manager remain vigilant, keeping a very close eye on earnings - the bedrock of this asset class.

Our confidence in the stability of earnings and the relative attractiveness of the asset class versus other risk assets offers little succour in the event of broader market weakness. The impact on the UK, and to a lesser extent Continental Europe, inflicted by unprecedented levels of political uncertainty may well only become apparent in years to come. What we do know, at the time of writing, is that we remain in a period of great political uncertainty and I take the opportunity to remind shareholders of the broad pan European spread of our assets". 

Income

Revenues have increased and as a result the final dividend will be increased to 8.6p (last year 7.55p) making a total of 13.5p for the year, an increase of 10% compared to the previous year (12.2p). It has produced compound annual dividend growth of 12.5% p.a. over the past 5 years and this has been fully covered by property revenues. The shares yield 3.3% at the current price of 408p.

 

5 Yr Comparison v FTSE All Share

This trust has so far been a very positive addition to my portfolio - the share price is up 40% on my purchase price at the end of 2016, plus the dividend has increased by 80%. Obviously off to a good start but I expect a little volatility in the share price until the Brexit saga is resolved...could be a while yet. However, the income seems fairly secure and I am happy to continue with my current holding as property offers diversity to my 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!