Monday, 2 August 2021

Trojan Ethical Fund - Portfolio Addition


This fund was added to my defensive portfolio following the dramatic market turmoil at the start of Covid last year. As the year unfolded and the markets started to rebound I sold the fund along with many other investments to fund my house move which was completed last November.

At the start of 2021 my portfolio was 100% equities but I am now starting to rebalance my allocation to build back up some of the defensives which were sold off last year. In the past week or so I have reduced my Google, Microsoft and NIBE shares after a really strong run this past year - Google up more than double since purchase last April and Microsoft up 75% - and the proceeds have been divided between iShares Index Linked Gilts (INXG) and this defensive ethical fund.

2 Yr Chart...Google v FTSE All Share Index
(click to enlarge)

What It Does

This is a multi-asset fund aiming to deliver above-inflation growth. The assets are similar to the larger Trojan Fund but subject to ethical considerations. Therefore all investments are screened to exclude Arms, Pornography, Tobacco, Fossil Fuels, Alcohol, Gambling and High-Interest Lending. The fund will only invest in securities guaranteed by the G7 countries - UK, US, Canada, France, Germany and Japan.

The fund was set up in March 2019 to complement their Ethical Income Fund and is managed by Charlotte Yonge who has been with Troy since 2013 and who also co-manages their £4bn flagship Trojan Fund with Sebastian Lyon. The emphasis is very much focused on the preservation of capital which is now starting to become more of a focus for me rather than attempting to make more and more profits. Returns have been very acceptable for a defensive fund...7.2% in 2019, 10.9% in 2020 and 4.6% to end June.

Trojan Ethical 1 yr Chart (click to enlarge)

Total return since March 2019 is 24.4% compared to FTSE All Share 10.2%.

Holdings

Asset allocation will vary but currently

Global Equities           35%

UK Equities                  8%

IL Bonds                     31%

Gold                            12%

UK T Bills                     8%

Cash                              6%

Some top equity holdings include Microsoft (5.7%), Google (5.3%), Visa (4.4%), Medtronic (3.8%), Unilever (3.5%), American Express (3.3%), Nestle (3.1%).

I am starting to become concerned about the levels of borrowing and QE arising from the prolonged Covid situation as well as the slow progress from our so called leaders on the climate crisis. I will expand upon these concerns in a future article but I am starting to see a few bears on the horizon so it just feels like a good time to reduce equities and start moving some of my portfolio back into safer waters.


The purchase price was 119p and fund accounts for just 4% of my green portfolio.

As ever, this article is merely a record of my personal investment decisions and take on the risk/rewards associated with the current markets. It should not be regarded as an endorsement or recommendation - always DYOR!

Sunday, 25 July 2021

Climate Benchmarks and the Big Oil Companies


 [N.B. this article is mainly about climate change so if this is of no interest to you feel free to skip]

I think by now most people have some understanding about climate change and the need to move away from fossil fuels to cleaner forms of energy. To meet the Paris Agreement targets and keep global warming well below 2.0C our world needs to urgently decarbonise to avoid devastating climate events. We are already seeing this at just 1.2C of warming with recent flooding in Germany and China ( a years rain in a single day), wildfires in Siberia and the west coast of US and Canada.

The use of fossil fuels (coal included) account for around 75% of global carbon emissions so it is crucial to find ways to end our reliance on this form of energy to prevent more warming. The private sector companies will play a crucial role in this process of decarbonisation and whilst many are starting to make promises to reach net zero emissions by 2050, there is little signs of actual progress.

The World Benchmarking Alliance provides an accountability mechanism to rank the progress of companies and hold laggards to account. They have recently published a report into the oil & gas sector looking at the world's 100 top companies - listed companies and state-owned companies.

The WBA Report Highlights

  • Not one of the 100 companies have committed to stop exploring for new oil/gas
  • They will collectively exceed the sector's carbon budget by 2037 - 13 years too early
  • From 2014 to 2019 all increased either oil or gas production
  • Only 13 of the 100 have low carbon transition plans which extend at least 20 years ahead

Vicky Sins, Lead Decarbonisation and Energy Transformation at WBA, commented:

"Every company, policy maker and investor is aware of the urgent need to prioritise decarbonisation and energy transformation, but awareness has not led to sufficient action.

In a world powered by a new era for energy production, oil and gas companies find themselves at a crossroads – transform or become redundant. They can no longer plead ignorance of how urgently change is needed. The industry must acknowledge the wholesale transformation required to survive and signal the steps it is taking to meet this challenge".

The ranking are A to E and assess each of the 100 companies alignment with the Paris Agreement and progress (mainly lack of) towards 1.5C of warming.

None received an A ranking and only 2 were ranked B...Neste of Norway and Engie of France; 9 companies received a C ranking including BP, Repsol, Total and Shell. The next 20 or so were classed as D and the remaining 66 oil companies (two-thirds) were place on the naughty step with an E rating including Conoco Phillips, Petrobras of Brazil, Occidental (a favourite of Warren Buffett), Chevron, Russia's Gazprom and Rosneft (BP has 20% stake), Exxon Mobil and Saudi Aramco - the world's biggest oil producer. 

Only 12 of these 100 companies provide information on low carbon capital expenditure plans to 2024 and these planned investments are not enough to move to a low-carbon economy.

There is an overall lack of transparency on climate reporting with only partial data on scope 1 & 2 emissions and only one third providing data on scope 3 emissions.

Basically, the sector as a whole is failing to accept responsibility for carbon emissions. The carbon footprint of these companies is huge... Saudi Aramco scope 1,2 &3 emissions for example were higher than the combined emissions of Germany, France, Italy and Spain!

Without immediate and decisive action, the oil & gas sector will prevent the world meeting it goal of limiting warming to 1.5C above pre-industrial levels by 2050.

Changes 1880 to 2020 (globalchange.gov)
(click to enlarge)

Key Findings

So, the main recommendations from the report are :

1. Keep oil and gas in the ground. Instead of pursuing a 'take what you can, while you can' approach companies should transition away from oil and gas to not only keep our planet safe but also to ensure their own survival in a low carbon future.

2. Stop using smoke and mirrors tactics to deflect attention from their lack of action. Rather than rising to the challenges they use lack of transparency and arms-length lobbying via trade associations to undermine climate action.

3. Take responsibility for scope 3 emissions. Only 3 of the 100 have comprehensive emissions reduction targets in place.

4. Seriously ramp up capital expenditure into low carbon solutions.

5. State-owned companies account for 56% of emissions compared to publicly listed companies. Many of the states have made no commitment to net zero emissions.

Human Rights

Article 3 of the Universal Declaration of Human Rights is short (link):

"Everyone has the right to life, liberty and security of person"

By continuing to drill for more oil and gas and knowing the use of that process will result in more serious global warming, the oil companies are compromising the right to life of our children, grandchildren and future generations.

This was the conclusion of the landmark case brought against Shell Oil by the Dutch people earlier this year. The court ordered Shell to speed up its CO2 reduction targets from 20% by 2030 to 45%.

Shell will appeal the decision but it is now clear that there are limits to what these companies can get away with and I expect to see far more lawsuits filed against the fossil fuel companies going forward.


The Role of Investors

I think most investors would want to avoid making profits from companies that make instruments of torture used by oppressive regimes. But what about companies that compromise the future of life as we have known it for thousands of years?

The big oil companies have to take responsibility for their operations and emissions. So far, they have been slow to act in a climate-responsible way. Many investors will hold many of the large oil companies in their portfolio...either directly or indirectly via index funds or investment trusts. Most people with a pension will unknowingly be investing in these companies via their works pension fund or SIPP. We are a therefore part owners of these companies we also have a responsibility if we care about the future well-being of the planet for our children and grandchildren.

"Once climate change becomes a defining issue for financial stability, it may already be too late" former governor of the Bank of England Mark Carney.

Divest

One way to take action is to divest your portfolio of fossil fuel companies. Apart from the ethical arguments, many investors are aware of the increased risks of continuing to hold on to fossil fuel companies. Renewable energy is now cheaper than oil, gas and coal and in 2020 overtook coal as the world's largest source of installed power capacity. The big risk for investors is that of stranded assets as demand for oil and gas falls away. Many coal companies filed for bankruptcy in 2016 after just a 2% reduction in global demand for their product.

There is also the increased risks associated with litigation as Shell found out last month. Expect much more of this over the coming few years.

In 2018, I took the decision to divest my personal portfolio of fossil fuel companies. This involved the sale of some of my largest holdings such as Vanguard Lifestrategy which, due to their size, hold large quantities of all the global fossil fuel companies.

There are now fossil-free index funds such as iShares World SRI and Vanguard ESG Global All Cap

For further reading here's a link to Ethical Consumer on Carbon Divestment

Pressure from the Big Fund Managers

The likes of Blackrock and Vanguard currently have a combined $16 trillion of assets under management and therefore could wield shareholder power and shape the agenda to hold companies to account when it comes to engagement and voting at annual meetings.

These two fund managers have the capacity to become climate change leaders and there is now increasing demands for them to step up and take more responsibility and take firmer action against boards of directors who are consistently failing to make progress on climate.

They are now starting to offer fossil-free funds which give investors more climate-frienly options but they need to ensure all their ESG funds are truly sustainable and exclude for example the banks which finance the operations of the worst climate offenders.

To be fair, CEO Larry Fink clearly recognises the issues in this 2021 annual letter to global CEOs

"I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives. It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.

 

In the past year, people have seen the mounting physical toll of climate change in fires, droughts, flooding and hurricanes. They have begun to see the direct financial impact as energy companies take billions in climate-related write-downs on stranded assets and regulators focus on climate risk in the global financial system. They are also increasingly focused on the significant economic opportunity that the transition will create, as well as how to execute it in a just and fair manner. No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day".

 


Conclusion
 

We are currently at an average 1.25C above pre-industrial levels. We are on course for 1.5C by 2030 and the UK Committee on Climate suggest another 0.6C warming by 2050. This is already baked in even if we were to stop carbon emissions now. The scenes of devastating flooding in parts of Germany, Belgium and China last week will become more frequent and more widespread due to more and more warming.

But of course no big surprise to learn the fossil fuel industry is dragging it's heels on climate change. They understand the climate science but have consistently tried to avoid responsibility for the past 30 or 40 years. This obviously needs to be addressed with more urgency. Climate change poses an existential threat to us all and a corresponding threat to the global economy. We need to get to net zero carbon emissions by 2050 and this message will be repeated at the COP 26 gathering of world leaders in Glasgow later this year. This will not be possible whilst the big oil companies continue with 'business as usual'.

The state-owned companies are obviously out of reach for the investment community but we can and should do much more to try to bring the listed companies into line. Everyone has a part to play in the process no matter how small or insignificant it may appear.

Let's not say in 10 years time that we did not understand the scale of the problems posed by climate change or have regrets that we did not do more at the time to mitigate the looming crisis. "Do your little bit of good where you are; it's those little bits of good put together that overwhelm the world" Desmond Tutu.

Over to you...what do you think about the big oil companies? How best to bring about a change? Have you considered divesting fossil fuel companies from your portfolio? Maybe you think it doesn't make a difference. Leave a comment below and share your thoughts, hopes, fears with others.

Wednesday, 21 July 2021

Polar Capital Technology - Results


The Covid-19 pandemic has buffeted the global economy in quite an extraordinary and unexpected way this past 16 months. Many sectors have been hit very hard but the lockdowns and social distancing means we all have to adapt to find new ways of doing things. Technology has helped us all to get through the pandemic. Millions have been working from home, online shopping has doubled and there has been an increased demand for home entertainment. The pandemic has highlighted just how reliant we all are on technology and this is likely to continue as more of the world gets the vaccine. A good way for small investors to access this sector is via investment trusts. PCT was added to my portfolio in 2018 at £12.50 and topped up at a later date.

Launched in 1996, the trust has grown rapidly and now has assets under management of over £3.2bn. It is a global trust however 70% of the holdings are listed in the US. That said, many of these US-listed companies such as Microsoft, Apple and Alphabet (Google) are truly global. The trust has been managed by a team led by Ben Rogoff since 2006.

The trust currently has just over 100 holdings and the top 10 account for 45% of the portfolio. These tech companies are fundamentally transforming the way we live our lives in a similar way to the impact of the industrial revolution 200 years previously. Current largest holdings include all the usual suspects...Microsoft (8.8%), Apple (8.6%), Google (8.2%), Facebook (4.6%), Samsung (3.2%) and NVIDIA (2.9%). (latest factsheet)

I believe the long term growth prospects for the technology sector offer investors significant rewards. Yes, these tech stocks have done well since the market turmoil of 2008/09 - PCT share price up 578% over the past decade - and there is likely to be some volatility as we saw last March when the share price dropped rapidly from £17.40 to £12.40 in just 3 weeks but a month later the SP bounced back to £18. I see no reason why the sectors ability to disrupt and grow should not continue.

Indeed, last April I added Microsoft and Google as stand-alone additions to my portfolio taking advantage of the dip in prices during the initial Covid sell-off. I also hold the Allianz Technology Trust.

Results

The trust has today released results for the year to end April 2021 (link via Investegate). Net assets have increased by 45.5% compared to the benchmark World Technology index 46.4%. The share price return however was 33.3% as the shares moved from a premium of 3.4% last April to a discount of 5.3% at the end of the financial year. Over the same period, the FTSE All Share advanced by 25.9%.

I was particularly interested to read the manager's comments on emerging themes :

"In addition to our core themes, there are a number of emerging themes that we are excited about. One of the most exciting and far-reaching of these is clean energy particularly after a year that saw governments get serious about climate change with 112 countries and the EU committing to "Net Zero" targets by the end of 2050 and China pledging to do so by 2060.

The election of President Biden brought a re-commitment to the Paris Agreement, the EU launched the European Green Deal, while the UK has vowed to "Build Back Greener" after the pandemic. Such policies have resonated with the public while triggering a surge of interest in clean energy stocks, with the roadmaps and improved funding environment providing visibility into which technologies are progressing towards commercial scale.

We are particularly excited about the improved prospects for hydrogen - 'an essential element in the energy transition' which could account for 24% of final energy demand and 5.4m jobs by 2050". The first phase of the EU's hydrogen strategy has targeted at least 6GW of green (i.e., entirely carbon free) hydrogen electrolysers which alone amounts to 60x the installed base of hydrogen electrolysers as of 2019. Industry leader Nel ASA (not held) has also announced a $1.50/kg target for producing green hydrogen by 2025 which would represent a 70-75% reduction from today's cost and potentially represent a monumental step toward widespread commercial adoption.

The solar industry - already cost-competitive in many parts of the world - also looks well-placed to benefit from the goal of carbon neutrality, not least because green hydrogen requires a renewable energy input. We are also excited about modernisation opportunities in the power grid with an estimated $14trn of investment required globally by 2050 to enable the transition from stable fossil fuel power energy generation to the more intermittent nature of renewable energy.

However, the long duration nature of many of these opportunities make them highly sensitive to interest rates which together with elevated valuations (even following recent share price weakness) explains our relatively modest exposure to pure-play clean energy investments today

However, we have greater exposure to electric vehicles which are likely to represent a critical part of any green solution given that transportation is responsible for almost one-quarter of direct global emissions from fuel combustion. Together with autonomy and connectivity, we believe that electrification represents the biggest revolution in the automotive industry since Henry Ford unveiled the Model T in 1908".

Hopefully the trust will start to pick up some portfolio additions in this area over the coming year or two.


ESG and Climate

On a personal level, I was pleased to note that the trust introduced a ESG scoring/analysis framework last year to assess holdings and challenge underperformers or avoid those companies with low ESG ratings.

Global data centres are responsible for around 2% of total CO2 emissions however despite a three-fold increase in workload over the past 5 years, energy usage has remained flat due to the move to renewable forms of energy and greater efficiency. It is suggested that the move to cloud could reduce energy consumption by 87%.

The technology sector is uniquely positioned to provide the innovation and scale required to address the existential challenges posed by climate change.

PCT 3 Yr Share Price

The current price is just over £24 so a nice gain of 90% since purchase in June 2018. The shares account for 30% of my technology 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!

Saturday, 10 July 2021

iShares MSCI World SRI Fund - Update


It's been almost three years since I decided to bring my investments more into line with my values and lifestyle. Part of this process has been to divest the portfolio away from fossil fuel companies such as Exxon and Shell and also the big banks which finance their planet-destroying activities. This inevitably involved the sale of my multi-asset global index funds such as Vanguard Lifestrategy.

However, most of the ESG alternatives I looked at initially turned out to be a disappointment due to the level of fossil fuel companies held by them so I was pleased when a reader flagged up this global index fund from iShares last year.

This fund was launched in 2017 but in November 2019 it adopted a new benchmark by moving from the MSCI World SRI Select to the new SRI Select Reduced Fossil Fuel Index (RFF)

RFF Index

This has just 382 holdings compared to 1,560 for the traditional global index fund.

The index has been created for those investors looking for a socially responsible investment benchmark made up of companies showing strong sustainability qualities whilst avoiding  a range of sectors which are unethical and, essential for me, excluding fossil fuels. It also screens out companies involved in weapons, tobacco, alcohol, gambling, nuclear power, adult entertainment and GMO.

The companies that make it through are then assigned an ESG rating which indicates a companies ability to deal with ESG risks relative to others in the same sector and excludes those which are below average.

Returns

It is coming up to one year since the fund was added to my green portfolio at the price of £4.85. I topped up my holding in February at £5.62 so average price for total holding was £5.24. The current price is £6.08 so a gain of 25% on my initial purchase and 16% overall so far. The fund accounts for 10% of my green portfolio.

The index has returned an average of 16.8% p.a. over the past 5 years to end June 2021 compared to 15.4% for the World Index. This is not really so surprising given the poor performance of the energy sector in recent years.

Here's a short extract from MSCI  on their principles of sustainable investing:

"This rapidly changing world also presents investment opportunities on an unprecedented scale. Development of alternative energy sources could lead to transformative new products that cut our dependence on fossil fuels. Advances in technology could help resolve food and water shortages and enable us to grow sustainably within the limits of the planet’s resources. The next phase of the information revolution could lead to quantum improvements in productivity and connectivity in a manner that could enrich the lives of the socially and economically marginalized.

We believe that this convergence of factors (climate change, social attitudes, institutional governance, technological innovation) will significantly impact the pricing of financial assets and the risk and return of investments and lead to a large-scale re-allocation of capital over the next decades. Investors who treat these factors as a fad and continue to operate in a wait-and-see mode could find themselves unprepared for the dramatic repricing of assets that could result".

Share Price Performance Past 12 Months

The Covid-19 pandemic has shown how quickly unsustainable sectors can become exposed to a sudden shock to the system. After 18 months, we are slowly starting to get the economy up and running as most people here in the UK have received the double jab. But of course, there will be no vaccine jab to save humanity from the effects of runaway climate change so it will be essential to take radical and urgent measures on a global scale to address the crisis.

The big oil companies are coming under increasing pressure from fund managers and the wider community to reduce their huge carbon emissions and align their business towards the 1.5C limit imposed by the Paris Agreement. Recently Shell was ordered by a Dutch court to reduce it's carbon emissions by 45% by 2030. Here's a recent article. Legal action against other fossil fuel companies will inevitably follow and  increase the pressure to decarbonise their operations.

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"

It's not hard to conclude that the whole sector is in crisis and that a fundamental shift is taking place as the world starts to take climate change more seriously.

The small DIY investors who prefer low cost passive approach over active can now choose to continue with the traditional index or move to a cleaner index provided by these new fossil-free funds. But to be honest, I'm not sure why anyone would want to continue investing in a carbon-intensive sector where $billions worth of projects, financed by governments and the big banks, are at serious risk of becoming worthless - so called stranded assets.


All investors, large and small, have a choice over where to invest. Many are realising that the smart money is increasingly moving into sectors which offer sustainable and long-term solutions to the climate emergency and away from those companies and sectors which continue to be part of the problem.

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 July 2021

Chargepoint Holdings - Portfolio Addition


ChargePoint is the leading electric vehicle (EV) charging network in N America and Europe. Founded in 2011, it recently started trading on the New York stock exchange to become the world's first publicly traded charging network - ticker CHPT. EVs are clearly the future as governments legislate to phase out the internal combustion engine to address climate change...this will be 2030 in the UK. The EU have pledged to reduce carbon emissions by 55% by 2030 and are expected to ban the sale of new petrol/diesel by 2035 (at the latest). In the US, the new Biden administration plans to spend $2 trillion to 'green' the economy and roll out a raft of climate-friendly measures to address the climate concerns. The new administration has plans to install 500,000 public charging stations in the US by 2030. 

To facilitate the take-up of EVs there will obviously need to be a huge roll-out of charging points and this is the focus of CHPT. It currently operates over 130,000 charging points and plans to increase this to 2.5 million by 2025

Top EV maker Tesla is leading the charge to bring about the revolution in the way we drive but the likes of Ford, GM, BMW and VW are raising their game. It is estimated that around 30% of all cars on the road will be EV by 2030. That's an increase from 10 million to 145 million in the coming decade according to the latest forecasts from the IEA and possibly as high as 230 million if global governments get their act together on net zero policies.

What They Do

ChargePoint makes most of its income from the supply of EV charging equipment - mainly to commercial customers such as fleet operators, shopping centres and business premises - and then servicing and maintaining those sites. According to the latest results, 70% of revenues came from these commercial customers, a further 11% from fleet operators and 14% from residential customers.

Most of the current EV stations provide level 2 charging which is 240 volt AC power. This will give around 25 to 30 miles of range for the average car in one hour which is fine for overnight charging or when parked up at the office all day. CHPT is the market leader in level 2 charge points but is now looking to expand a range of superchargers which operate on DC supply and can offer a range of 200 miles in less than 15 minutes. They currently have around 2,000 of these more powerful charging stations in N America and Europe which represents around 2% of the total.


To date more than 92 million charging sessions have been delivered with a customer linking up to the network every 2 seconds.

In addition to the physical charging infrastructure, they are connected via industry-leading cloud software making the transition to EV as easy as possible for drivers. The app offers a range of features which includes a map of nearby charging points, remotely start a charge session from a smartphone, check charging status and get notified when charging is complete. In addition the app can link up with a home supply network to take advantage of cheapest charging rates.

They operate an open network which means its easy for any charging station to be used by any EV driver. Chargepoint is making efforts to sign up roaming partnerships with other networks so drivers can access a wide range of charging points throughout the country with just one account and mobile app.

Earnings

According to the latest Q1 results, revenues increased by 24% to $40.5m and forecast for the coming full year is $200m which would represent a 37% increase on the $146m revenues recorded in the last full year. The company is still to make a profit due to ongoing investment in R&D and expanding network however the company expects significant growth over the coming years after stalling with the Covid pandemic last year and is targeting profitability by 2024

In 2019, sales of EVs in the US and Europe accounted for less than 3% of all sales. By 2030 this is forecast to be 30% according to research from Bloomberg NEF.

The driver of this business is obviously the transition from petrol/diesel to electric. The company forecasts the sale of 2.3 million EVs  across N America and Europe this year which would represent an increase of 40% on 2020. This is likely to be repeated each year for the coming decade which should be good for the likes of Chargepoint and hopefully they can move to profitability as the business scales up.

Of course there will be more competition for this business, the car manufacturers are increasingly moving to EVs and will want a slice of the action. Ionity is a joint venture between Ford, VW, BMW and Daimler and aiming to expand fast charging infrastructure throughout the UK and the rest of Europe and of course Tesla have their own network of supercharging points.

Here in the UK, transport accounts for 27% of our greenhouse gas emissions and over half of this is from cars so it will be an important sector for the government to target over the coming decade with our pledge to reduce our carbon emissions by 78% by 2035. This will inevitable mean a massive increase in charging infrastructure in our homes, motorways, roads, towns and cities. Last November the PM announced £1.3bn to accelerate the roll out of charging infrastructure in his 10 point green plan. More details should be included in government's Transport Decarbonisation Plan due in the near future.

The stats page from Zap-Map provides a good reference point to the current state of play here in the UK.

CHPT Year-to-date share price

Like most of the new players in the new emerging economies, there are risks but also big rewards if these companies can make the transition work out with their business model. The shares reached a high point of $49 earlier this year but have recently fallen back. The shares were purchased at the price of $32.50 last week and funded from taking profits on a partial sale of my holding in Enphase which has done well, up 60% since purchase last November. 

The new addition accounts for just 2% of my green portfolio and makes a total of 20 individual holdings which account for 75% of the portfolio with the remaining 25% accounted for by 3 collective ETFs.

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 individual companies listed on a foreign exchange can be rewarding but is higher risk compared to collective investments - always DYOR!

Monday, 21 June 2021

SIPP Drawdown - Year 9 Update


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 9th anniversary. Here’s a link to the previous update of June 2020.

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.

Three years back and my state pension kicked in - currently £9,300 p.a. - so I am no longer so 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 SIPP drawdown portfolio so there have been a quite few changes since last June. My main focus over the past year has been to continue the move to fossil-free investments - and therefore the additions of the likes of Plug Power, Enphase and NIBE, a top up of the iShares Clean Energy ETF and the addition of the iShares fossil-free global index ETF which was flagged up by a reader this time last year.

The government bonds have been sold as well as the more cautious funds, Personal Assets and Trojan Ethical. I have also reduced my holding in the renewable infrastructure sector as I am not convinced the model is as robust as I thought last year, especially in relation to future power prices. Therefore NextEnergy, Greencoat UK Wind and Octopus have been sold and TRIG reduced.

My portfolio basically consists of a mix of green investments and technology. In the past year I also added the Allianz Technology Trust (recent 10:1 share split) to complement Polar Cap Technology.


(click to enlarge)

Performance

The big story over the past year has obviously been the coronavirus pandemic which has impacted the global economy and people's lives in a most profound way. I think this will obviously take some time yet to fully unravel but with the vaccine roll out starting earlier this year, we can see the prospect of things starting to open up.

Over the past 12 months, the FTSE 100 has moved ahead by 11.5% (plus dividends) from 6,292 last June to currently 7,017.

I have seen some spectacular returns from some of my clean energy holdings over the year. For the year to December 2020 my green portfolio returned over 50% but the sector has reversed in recent months and the SIPP portfolio is showing a gain of 21% since last June. Much of this is from £8,000 profits on the sale of 6,000 ITM shares.

Plug Power is up 75% since purchase, NIBE 33% and Enphase 35%. My iShares Clean Energy ETF is showing a share price gain of 60% over the past 12 months however my top-up was at a higher level than today.

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 7,017 - a gain of just 27.5%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 62%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £223.50 - a gain of 113% or CAGR annualised average of 8.8% p.a.

My self-managed SIPP portfolio including income has risen from £62,000 to £154,500. 
Taking account of the income withdrawn in the early years of £19,400, the total return is 149% which is very satisfactory and works out at an average annualised CAGR of 12% p.a.


State Pension

I 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 became 'mission accomplished' in 2018.

My state pension has now been in payment for just over three year which is long enough for me to know that I do not need to continue with drawdown from my SIPP. As it is a flexi-drawdown arrangement, 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 but more likely remain invested. I recently took a look at inheritance tax and realised it would be more tax efficient to take money from my ISA in future as the SIPP value does not currently count towards the £325,000 tax-free allowance for IHT.

Also, 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 the age of 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

Obviously I am really happy with almost a decade of self-managing a flexi-drawdown sipp portfolio. For the first few years, the dividend income predictably rolled in much as planned. During the next three years I withdrew significant lump sums tax free and placed the excess which I did not require for income in my ISA.

Since 2018 I have needed little or no income from my SIPP and will therefore continue to 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 if not needed for care home fees!

For me, the big advantage of the SIPP is the flexibility it offers. I started off with a portfolio of income-generating investment trusts. I then introduced the multi-asset, globally diverse index funds such as Lifestrategy and now I can focus on more climate-friendly options and do my bit for the planet. It certainly feels much better to have aligned my investments with my values and lifestyle and know I am no longer investing in fossil fuels which are continuing to add to global warming and undermine efforts to tackle the climate crisis.

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.

Wednesday, 9 June 2021

A Good Plan and the Right Temperament are Key Factors


I've been investing since the late 1980s when I received my free shares in Abbey National BS following their demutualisation. I started this blog in 2013 after moving into early retirement a few years earlier and have since written and self-published several books. Of course, like most small investors, I have had mixed fortunes along the way...last year was my best for actual returns with just over 50% from my green portfolio...this coming year could well be shaping up to be my worst year! But my long term average over the past 20 years is 9% p.a. which, whilst not outstanding, is very acceptable especially compared to returns of less than 2% from cash savings in recent years.

Legendary investor Benjamin Graham suggests "to achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks".

I thought it might be useful to pass on a few of my thoughts on what I believe it takes to become a half-decent investor. For sure I don't discount all the usual aspects of good practice...a diverse portfolio, keep costs as low as possible, an understanding of market volatility in relation to different asset classes etc. but here are my top three:

Temperament

For me, this is probably the most important aspect...the ability to know yourself, your ability to evaluate and understand risk, to know what level of market volatility is acceptable. On a personal level, I tend to be fairly unemotional in most aspects of life as a result of being someway along the aspergers spectrum, which is good for investing but not so good for personal relationships! I don't tend to prevaricate so when my I decide on a course of action I will go for it 100 percent.


Are you impulsive or can you play the long game and exercise a high degree of patience? Do you get dispirited and give up when things don't turn out as expected? Does making more and more money from your investments make you happy? On the flip side, would the sudden  loss of a large percentage of your investments make you very unhappy?

Some people are natural risk takers and will be well suited to a portfolio of individual shares and a higher weighting to equities. Others are more cautious and will be more comfortable with a more balanced portfolio including a mix of lower volatility assets such as bonds and property.

Therefore an appreciation of your psychological make up will be essential in selecting the most suitable asset allocation. We are all different, have individual goals and time frames; we have our individual values and ethical considerations - for me in recent years it has been climate change and therefore a radical shift of strategy to avoid the fossil fuel companies.

The reality is that DIY investing is not for everyone.

"We have seen much more money made and kept by 'ordinary people' who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock market lore"  Warren Buffett.

A Sound Plan and Strategy

With any long term adventure or project, it's always a good idea to have a plan of what you want to achieve and how you are going to get there. When I was starting up a new business venture in the early 1990s, I spent the first 6 months putting together a comprehensive business plan to persuade the bank manager to provide the initial funding followed by a further 6 months of market research before the business was launched.

Successful investing is all about the long term so it is important to have a strategy which will give you the best chance of riding out the inevitable market shake-outs and volatility and to remain 'in the game' for many years. It is therefore essential to develop a plan that meshes well with your temperament and personality and this will influence asset allocation.

With an understanding of your basic personality type, developing an investment plan can be fairly straight forward. In my book "DIY Simple Investing", I suggest the average small investor can achieve a good outcome with a very simple strategy based on the use of low-cost, multi-asset index funds. For many, this should be relatively easy to understand, simple to set up and involves a minimum of ongoing maintenance.

I suspect that many small investors will move to a simpler strategy as they gain more experience.

Be Aware of the Big Picture

For me over recent years the big picture has increasingly become climate change and how this will impact the global economy.

The world is starting to take the threats posed by global warming more seriously and there are now some significant policy changes from governments and the business community to address the climate crisis. These changes will impact the way we live our lives and the way our global economy is managed. This will inevitably have an impact on our investments as we move towards a more sustainable economy and reduce our dependence on fossil fuels.


The EU has pledged to reduce carbon emissions by at least 55% by 2030 (previously 40%) whilst Germany will now aim for net zero emissions by 2045. The US rejoined the Paris agreement in January and is aiming for net zero by 2050 and to decarbonise its energy sector by 2035. The world's largest CO2 emitter China has pledged to become carbon neutral by 2060.

The energy sector accounts for around 75% of warming so a shift away from fossil fuels in this area will be critical in the fight against climate change. For the past century or longer, the global economy has been dependent upon fossil fuels such as coal, oil and gas so the rapid transition to clean energy will be one of the most significant industrial developments of our time.

In recent weeks we have seen a ramping up of action against the oil majors; Blackrock and Vanguard voted against two of Exxon's board members in favour of climate activists. In Holland, Shell were ordered by the court to cut its carbon emissions by 45% by 2030 whilst at Chevron, 60% of investors voted in favour of climate resolutions forcing the company to cut emissions. The credit rating agencies have now warned that the financial risk for investors has increased. The big global banks are now coming under increasing pressure to cut off the supply of money for new operations in the fossil fuel sector.

Investors need to be aware of these changes and make provisions for climate factors in their long term investment plans and strategy.

On a personal level, I decided to move my portfolio into more climate-friendly investments in 2018 and this involved the sale of my multi asset global index funds as I wanted to divest away from fossil fuels. I am still waiting for the industry to provide an climate-friendly alternative to the likes of Vanguard Lifestrategy range but for the time being I have switched to a range of individual shares and some funds such as the iShares Global Clean Energy and their global fossil-free ESG index. Here's an article I posted back in May 2019.

Conclusion

So, I guess investing is not suitable for everyone and for those who don't have the time, inclination or temperament they would be better employing a financial professional or maybe considering the robo-advice route.

Of course, for those who decide to give the DIY route a go, there is much more to making a success of investing - some great books and blogs are worth reading/following, starting early and allowing gains to compound, avoiding switching in and out of strategies, avoiding high charges etc. - these are all important elements in the mix. But I believe investors will have a big advantage if they have a clear plan at the outset, they are aware of their psychology and temperament and they keep an eye on the big picture.

These are some of my thoughts but what has worked for you, what has been the main factors for your success so far and the pitfalls to avoid? Feel free to leave a comment below.

Sunday, 6 June 2021

McPhy Energy - Update


In January 2020 I took a look at the global potential for green hydrogen and suggested it could transform the global economy.

Last month the IEA released its pathway to net zero by 2050. The report called for an end to all new fossil fuel production and a radical shift to renewable energy to limit global warming to 1.5C. They suggest that hydrogen will play a big part in the transition and increase from 10% today to 70% by 2030 and that half of this increase will be green hydrogen from electrolysis of water.

Since deciding to move to a more climate-friendly portfolio in 2018, I have added several clean hydrogen-focused companies to my green portfolio including Powercell, Nel Hydrogen, ITM Power and Ceres Power. McPhy Energy was added in May 2020.

The Company

McPhy Energy is based in France and specialises in the manufacture of clean hydrogen storage and production solutions. Their focus is centered around helping clients in the transport and energy sectors to transition to business models based on zero-carbon emissions using green hydrogen.

The company has grown very rapidly over the past year - market cap approx €735m (listed in France). It has manufacturing bases in Germany and Italy as well as a distribution network in Asia and the Americas. Its products include a hydrogen electrolyser to split water and produce clean hydrogen and also sells solid-state hydrogen technology.

Results

In March the company reported strong revenue growth of 20% in 2020 - up to €13.7m (€11.4m 2019). The company raised €180m via an over-subscribed share placing last October which means they are well capitalised for their growth plans with cash reserves to €197m. 

Laurent Carme, CEO of McPhy, said: "The year 2020 marked a decisive turning point for the entire hydrogen industry. The launch of major public projects in Europe with the hydrogen strategy unveiled by the Commission in June, and in France with the announcement in September of the €7 billion investment plan, made clear the fantastic potential of renewable hydrogen to succeed in the energy transition.

However, despite a 75% increase in orders and the increase in revenues, this has not yet translated into profits with a net loss posted for the year of -€9.3m (-€6.3m for 2019).

H2 Filling Station

By the end of 2020 the company had over 44MW of electrolysers and 35 hydrogen stations installed or in the process of being installed. Some large deals look promising...McPhy has recently been selected by Nouryon and Gasunie, two leading industrial players, to equip one of the largest zero-carbon hydrogen production units in an industrial environment in Europe. Also they have secured a contract with the project company Hympulsion to equip the largest zero-emission hydrogen mobility deployment project in France and one of the most ambitious in Europe.
 

The company are in the final planning stages for a new gigafactory for the production of electrolysers with a capacity of 1GW and which is due to start production in 2024.

McPhy One Year Share Price
(click to enlarge)

The shares were purchased in my ISA last year at €5.60 . I took profits on half of the shares at €25 to release funds for my house purchase which completed last November. The remaining holding went on to reach a high of €40 by January but have since fallen back sharply along with most other clean energy stocks and currently stand at €26.50 and account for 4% of my green portfolio. I am hoping the shares can soon get back on an upward trajectory but I am expecting some volatility along the way.

There is naturally a lot of coverage being generated about clean energy and climate change generally. The big oil companies are under fire over their carbon emissions and are looking to transition to a cleaner, more sustainable business model. EDF has a stake in McPhy, German giant Linde acquired a stake in ITM and Bosch has a stake in Ceres Power.

Clearly the world is now starting to take climate change seriously and there is a real commitment to achieving net zero emissions by 2050. This simply cannot be achieved without the use of renewable green hydrogen on a large scale.

It will be interesting to see how the European hydrogen sector develops over the coming year as we start to come out of the coronavirus pandemic and look to build back better.

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 individual companies listed on a foreign exchange can be rewarding but is higher risk compared to collective investments - always DYOR!